IRP, PPP, and the Hedging Decision The one-year U.S. interest rate is presently higher than the Japanese interest rate. Assume a real rate of interest of 0 percent in each country. Assume that interest rate parity exists. You believe in purchasing power parity (PPP). You have receivables of 10 million Japanese yen that you will definitely receive in one year. Should you hedge? Briefly explain.
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.