Question
Suppose you are the treasurer of IBM with an additional $1,000,000 for a six-month investment. You are considering purchasing US Treasury bonds that yield 1,81%
Suppose you are the treasurer of IBM with an additional $1,000,000 for a six-month investment. You are considering purchasing US Treasury bonds that yield 1,81% (this is a semiannual rate, not an annual rate, by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = 100 Yen and the six-month forward exchange rate is $1.00 = 110 Yen.
Required:
What should the interest rate (an investment of comparable risk) be before you are willing to consider investing in Japan for six months?
Step by Step Solution
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Step: 1
As per the parity condition forward rate spot rate ...
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International Money and Finance
Authors: Michael Melvin, Stefan C. Norrbin
8th edition
978-8131234136, 123852471, 978-0123852472
