P21-12 Spot versus Forward Rates [LO1]

1. Suppose the spot and three-month forward rates for the yen are 120.88 and 133.26, respectively. What would you estimate is the difference between the annual inflation rates of the United States and Japan?

a. 10.24%

b. -32.30%

c. 49.61%

d. 47.70%

e. 45.79%

MC algo 21-10 Triangle Arbitrage

2. Currently, you can exchange $1 for either 106.68 or .7598 in New York. In Tokyo, the exchange rate is /.0075. If you have $1,550, how much profit can you earn with triangle arbitrage?

a. $75.89

b. $91.35

c. $86.54

d. $102.77

e. $82.21