Given:
The Spot Exchange Rate (R) between the British Pound and the Japanese Yen is Y190.00/L
The Six Month foward rate (F) is Y199.0476/L
British six-month government bonds offer an interest rate of 5%
Assuming that the global finaincial markets are perfectly efficent, what interest rate should Japanese six-month government bonds be offering? Using this formula:
1+i=(1/R)(1+i*) F=(1+i*)(F/R)
(i= domestic int rate; i*=foreign int rate)