Suppose U.S. dollar interest rate is 6% for one-year investment and the equivalent

Japanese yen investment is 1%. The market expects that the spot exchange rate between the

dollar and the yen will stay unchanged for the next year. Which of the following would

constitute a "carry trade"?

a. Borrow U.S. dollar, convert to Japanese yen, and invest in yen for one year.

b. Borrow Japanese yen, convert to U.S. dollar, and invest in dollar for one year.

c. Borrow U.S. dollar, convert to Japanese yen, and invest in dollar for one year.

d. Borrow Japanese yen, convert to U.S. dollar, and invest in yen for one year.

If the dollar interest rate is 5% (for one year investment), the equivalent SF interest rate is

8%, and spot exchange rate is $1.10/SF, what is the one-year forward exchange rate under

interest rate parity?

(Keep four decimals)