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The annual, riskless, nominal interest rate in the United States is 5%. The spot rate between the yen (JPY) and the dollar (USD) is USD 0.009791/JPY and the 180-day forward rate between the yen and the dollar is USD 0.009932/JPY.

a) What is the annual, riskless, nominal interest rate in Japan if interest rate parity holds?

b) What happens if interest rate parity is violated? Explain.

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Financial Management, Finance

Category:- Financial Management
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