The first number is us interest rate -foreign interest rate, Ask an Expert

Management Studies

The first number is U.S. interest rate -Foreign interest rate. For instance for 1-year forward Yen of 4.5%, it is the U.S 1-year rate less Japanese 1-year rate. The number in the parenthesis is 5 for 1 year forward yen. This amount is the forward premium in yen as it is positive.

Question: Suppose you can borrow $10 million or its yen equivalent, what actions would you take in 1-year yen forward market in order to make arbitrage profit? How much arbitraged profit you are likely to make?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9721386

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