Problem 3 One year rates are 2.5% in Japan and 4.1% in France. inflation is 2.0% in Japan and 3.2% in France. The spot rate is I yen buys .009257888 Euro's or 1 Euro buys 108.016 Yen (the same thing) just said diffently. Does interest parity hold? Compare it to the answer you calculate. The forward rate your broker is quoting you is 110.00 yen/euro Problem 4 You friend from Japan attracted by the higher interest rates in France figures she will invest $2,000,000 yen in French 1 year bonds and hedge back the currency, rather than investing in japan-- is this a good idea? Why? Use the interest rates from problem 3. The forward rate you are quoted is 110 yen/Euro Problem 3 One year rates are 2.5% in Japan and 4.1% in France. inflation is 2.0% in Japan and 3.2% in France. The spot rate is I yen buys .009257888 Euro's or 1 Euro buys 108.016 Yen (the same thing) just said diffently. Does interest parity hold? Compare it to the answer you calculate. The forward rate your broker is quoting you is 110.00 yen/euro Problem 4 You friend from Japan attracted by the higher interest rates in France figures she will invest $2,000,000 yen in French 1 year bonds and hedge back the currency, rather than investing in japan-- is this a good idea? Why? Use the interest rates from problem 3. The forward rate you are quoted is 110 yen/Euro