If the annual nominal interest rate on 10-year U.S. Government Treasury bonds is 7.35% and the annual nominal interest rate on 10-year Japanese bonds is 5.75%, what is the expected future spot rate in 10 years given that the current spot exchange rate between U.S. dollars and Japanese yen is $0.00959?

Question

Quizplus · Accepted Answer

The expected future spot rate can be calculated using the interest rate parity formula: Future Spot Rate = Current Spot Rate * (1 + Interest Rate Domestic) / (1 + Interest Rate Foreign). Plugging in the values: $0.00959 * (1 + 0.0735) / (1 + 0.0575) = $0.01114.

If the Annual Nominal Interest Rate on 10-Year U