Question
Ann is a currency trader at Summitone securities in Tokyo. She plans to (a) borrow 100,000,000 in Japan at 0.80% a year for one year
Ann is a currency trader at Summitone securities in Tokyo. She plans to (a) borrow 100,000,000 in Japan at 0.80% a year for one year and (b) invest the loan in Brazil where she can earn 5.00% a year in BRL for one year. Ann can convert JPY into BRL at 25.00 = R$1.00 today; and she expects that in one year from now the spot rate will be at 24.00 = R$1.00. Using these assumptions and parameters, please mark the CORRECT answer:
a. She will lose 800,000 from the trade
b. She will profit 800,000 from the trade
c. This is the covered parity condition and she will break even
d. This is the uncovered parity condition and she will break even
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