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Please answer the last 2 question for each problem 2. [Covered Interest Parity Condition] Suppose that you have $1 to invest. You have two investment

Please answer the last 2 question for each problem image text in transcribed
2. [Covered Interest Parity Condition] Suppose that you have $1 to invest. You have two investment options: one is to buy 1-year U.S. bonds that offer a market interest rate of 8% per year, and the other is to buy 1-year Japanese bonds that pay 12% interest per year. Assume that you decide to buy the Japanese bonds with $1 and that you enter into a 1-year forward contract to protect your investment from possible fluctuations in the exchange rate. The forward contract involves the sale of the yen investment proceeds (principal + interest earnings) for dollars to be delivered one year later. Today's exchange rate is 100: $1, and today's forward exchange rate to be delivered one year from today is V104: $1. Does the covered interest parity condition hold? Could you make more money from your investment in the Japanese bonds rather than your investment in the U.S. bonds? 3. [Uncovered Interest Parity Condition] Suppose that you have $1 to invest. You have two investment options: one is to buy 1-year U.S. bonds that offer a market interest rate of 8% per year, and the other is to buy 1-year Japanese bonds that pay 12% interest per year. Assume that you decide to buy the Japanese bonds with $1. This time you don't enter into a forward contract to protect your investment from possible fluctuations in the exchange rate. Today's exchange rate is V100: $1, and the expected future exchange rate that will prevail one year from today is V98: $1. Does the uncovered interest parity condition hold? Could you make more money from your investment in the Japanese bonds rather than your investment in the U.S. bonds

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