Assume the one-year forward rate between the U.S.and Japan is ¥120.38 = $1.A one-year risk-free security in Japan is yielding 4.3 percent while it is 3.8 percent in the U.S.Assume interest rate parity exists.What is the spot rate between the U.S.and Japan?

Question

Quizplus · Accepted Answer

According to interest rate parity,
(1+us interest rate)=(spot rate/forward rate)(1+japan interest rate)
(1+0.038)=(S/120.38)(1+0.043)
S=$1 × 120.38 × (1+0.038)/(1+0.043)
S=¥119.80
Therefore, the spot rate between the U.S. and Japan is ¥119.80.

Assume the One-Year Forward Rate Between the U