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blank 1 a higher / a lower / the same blank 2 decreases / appreciates blank 3 decreases / appreciates blank 4 cannibalization / arbitrage
blank 1 a higher / a lower / the same
blank 2 decreases / appreciates
blank 3 decreases / appreciates
blank 4 cannibalization / arbitrage / flotation / conversion
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Multinational Financial Management: Interest Rate Parity return on security The general relationship between spot and forward exchange rates is specified by a concept called interest rate parity. It specifies that investors should expect to earn -Select- investments in all countries after adjusting for risk. The relationship is expressed in the following equation: Forward exchange rate 1+h = 1+rt Spot exchange rate Both the forward and spot rates are expressed in terms of the amount of home currency received per unit of foreign currency. Your overall return will be higher than the investment's stated return if the relative to your home currency. On the other hand, your overall return will be lower if the foreign currency you receive -Select until the relationship does hold. currency in which your investment is denominated -Select value. If this relationship doesn't hold, currency traders will buy and sell currencies engaging in -Select in Quantitative Problem: Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.011, while in the 180-day forward market 1 Japanese yen = $0.0118. 180-day risk-free securities yield 1.35% in Japan. What is the yield on 180-day risk-free securities in the United States? Do not round intermediate calculations. Round your answer to two decimal places %Step by Step Solution
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