Given the following data for 13 th March 2007: The interest rate on 12-month German T-bills :

Question:

Given the following data for 13^th March 2007:

The interest rate on 12-month German T-bills : 4.00 %

The interest rate on 12-month Japanese T-bills : 0.61%

Spot exchange rate : €1.00 = Yen154.2

(a) Making clear your assumptions, compute the market’s expectation of the exchange rate on 13^th March 2008.

(b) If on 13^th March 2007 you find a bank quoting a 12-month forward rate of €1.00 = Yen152.0, explain how you could profit by speculating.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

Fantastic news! We've Found the answer you've been seeking!