INTEREST RATE PARITY Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.008055, while in the 90-day forward market 1 Japanese yen $0 008065. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day risk-free securities in the United States?
To determine: The yield of 90 days risk free securities in the United States.
Introduction:
Interest Rate Parity:
It refers to that theory which indicates the difference of interest rates provided by two different countries is to be same as the difference of two types of the exchange rate, which are forward exchange rate and spot exchange rate.
Given information:
The one Japanese yen in spot market is $0.008055.
The forward rate of one Japanese yen is $0.008065
The yield of 90 days risk free securities is 2% or 0.02.
Equation of interest rate parity,
Where,
Substitute $0.008065 for forward rate, $0.008055 for spot exchange rate,
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals of Financial Management (MindTap Course List)
Financial & Managerial Accounting
Principles of Microeconomics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Corporate Financial Accounting
Principles of Economics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Foundations of Business (MindTap Course List)
Accounting Information Systems
Probability and Statistics for Engineering and the Sciences
Brief Principles of Macroeconomics (MindTap Course List)
Cornerstones of Financial Accounting
STATISTICS F/BUSINESS+ECONOMICS-TEXT
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Financial And Managerial Accounting
Management, Loose-Leaf Version
Financial Accounting
Essentials of Economics (MindTap Course List)
College Accounting, Chapters 1-27
Contemporary Marketing
College Accounting (Book Only): A Career Approach
Financial Accounting
MKTG 12:STUDENT ED.-TEXT
Managerial Accounting: The Cornerstone of Business Decision-Making
Intermediate Accounting: Reporting And Analysis
Financial & Managerial Accounting
Accounting Information Systems
Fundamentals of Financial Management (MindTap Course List)
Pkg Acc Infor Systems MS VISIO CD
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Principles of Macroeconomics (MindTap Course List)
College Accounting (Book Only): A Career Approach
Accounting (Text Only)
Exploring Economics
Practical Management Science
Survey of Accounting (Accounting I)
Corporate Financial Accounting
Macroeconomics
Economics For Today
Cornerstones of Cost Management (Cornerstones Series)
Purchasing and Supply Chain Management
Microeconomics
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Economics (MindTap Course List)