Foreign exchange markets


Question:

Briefly describe what happens in foreign exchange markets. The spot Yen/$US exchange rate is Yen119.795/$US, and the one-year forward rate is Yen114.571/$US. If the annual interest rate on dollar CDs is 6%, what annual interest rate would you expect on Yen CDs?

Note: Be sure to show how you arrived at your answer.

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Finance Basics: Foreign exchange markets
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