A foreign exchange dealer in Tokyo provides the following quotes for spot exchange and 3-month forward exchange between the Malaysian ringgit (MR) and the U.S. dollar:
|
Bid (MR/$)
|
Ask (MR/$)
|
|
Spot
|
4.0040
|
4.0200
|
|
3-month forward
|
3.9690
|
3.9888
|
a. In New York, 3-month U.S. Treasury bills yield 7 percent per annum. What should be the annualized yield on 3-month Malaysian government bills? Use U.S. dollar ask quotes for simplicity.
b. Verify your answer to part a. with a hypothetical investment of $10 million for three months in each country. Use only ask quotes for simplicity and ignore other fees, charges, and taxes.