Problem:
Assume the spot rate for the Japanese yen currently is ¥99.31 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent.
Required:
If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?
Required:
- 1.63 percent
- 4.20 percent
- 5.01 percent
- 4.96 percent
- 2.11 percent
Note: Be sure to show how you arrived at your answer.