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Social Sciencestainht14. A Japanese investor can earn a I percent annual interest rate in Japan or about 3.5 percent peryear in the United States. If the spot exchange rate is 101 yen to the dollar, at what one-yearforward rate would an investor be indifferent between the U.S. and Japanese investments?A. VI00.58B. 98.56C. V101.68D. 197.42E. VI03.50An investor starts with $1 million and converts it to 0.75 million pounds, which is theninvested for one year. In a year the investor has 0.7795 millice pounds, which she thenconverts to dollars at an exchange rate of 0.72 pounds per dollar. The U.S. dollar anualrate of return eamed was15.
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stainht 14. A Japanese investor can earn a I percent annual interest rate in Japan or about 3.5 percent per year in the United States. If the spot exchange rate is 101 yen to the dollar, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments? A. VI00.58 B. 98.56 C. V101.68 D. 197.42 E. VI03.50 An investor starts with $1 million and converts it to 0.75 million pounds, which is then invested for one year. In a year the investor has 0.7795 millice pounds, which she then converts to dollars at an exchange rate of 0.72 pounds per dollar. The U.S. dollar anual rate of return eamed was 15.
Expert Answer
According to the interest rate parity formula, forward rate can be calculated if the i...
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Forward rate Current spot rate x (1+domestic currency interest rate) (1+foreign cumency interest rate) - 101x (1+0.01) (1+0.035) - 102.01/1.035 -¥98.56
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