ssume that the spot rate e = ¥124.5/$ and the three-month forward rate f = ¥ 127/$. Assume further that the annual interest rate in the U.S. is 4% and that in Japan is 6%.  Determine the direction of the flow of funds and the exact net gain (not the approximate amount) from investment in percentage, given that short-term funds are invested for three months. As funds flow from one country to another, what will happen to the spot rate, the forward rate, the interest rate in the U.S., and the interest rate in J

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter21: International Cash Management
Section: Chapter Questions
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Assume that the spot rate e = ¥124.5/$ and the three-month forward rate f = ¥ 127/$. Assume further that the annual interest rate in the U.S. is 4% and that in Japan is 6%.  Determine the direction of the flow of funds and the exact net gain (not the approximate amount) from investment in percentage, given that short-term funds are invested for three months. As funds flow from one country to another, what will happen to the spot rate, the forward rate, the interest rate in the U.S., and the interest rate in Japan?

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