International finance
a. Suppose that in Japan the interest rate is 4% and US interest rate is 3%. What is the best estimate of the one-year forward exchange premium(discount) on the yen against dollar?
b. Carry trade. In early 1989, Japanese interest rates were about 4 percentage points below U.S. interest rates. The wide difference between Japanese and U.S. interest rates prompted some U.S. real estate developers to borrow in yen to finance their projects. Spell out the sequence of the transactions. Comment on this strategy.