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Suppose that in 2025, one- and two-year interest rates are 6.2% in the United States and 1.7% in Japan. The 5pot exchange rate is USD/JPY
Suppose that in 2025, one- and two-year interest rates are 6.2% in the United States and 1.7% in Japan. The 5pot exchange rate is USD/JPY = 120.10. Suppose that one year later, interest rates are 3% in both countries, while the value of the yen has appreclated to USD/JPY =114.82. a. Benjamin Pinkerton from New York invested in a U.S, two-year zero-coupon bond at the start of the period and sold it after one year, What was his return? b. Madame Butterfly from Nagasakd bought some dollars. She also invested in the two-year U.S. zero-coupon bond and sold it after one year. What was her return in yen? c. Suppose that Ms. Butterfly had correctly forecasted the price at which she sold her bond and that she hedged her investment against currency risk. What would have been her return in yen? Note: For all requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places
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