Question suppose that three-month interest rates annualized, Ask an Expert

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Question: Suppose that three-month interest rates (annualized) in Japan and the United States are 7 percent and 9 percent, respectively. If the spot rate is $/¥142 and the 90-day forward rate is $/¥139, [Note: You need to compute the 90day interest rates to work out the solution.]

a) Where would you invest?

b) Where would you borrow?

c) What arbitrage opportunity do these figures present?

d) Assuming no transaction costs, what would be your arbitrage profit per unit borrowed?

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Accounting Basics, Accounting

Category:- Accounting Basics
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