The yen per dollar spot rate is 104.The yen per dollar forward rate is 107.If the US risk free rate is 2.4%,what is the likely yen risk free rate?

Question

Quizplus · Accepted Answer

The forward rate can be used to estimate the foreign risk-free rate using the interest rate parity formula: Forward Rate = Spot Rate * (1 + Domestic Rate) / (1 + Foreign Rate). Solving for the yen rate gives approximately 5.35%.

The Yen Per Dollar Spot Rate Is 104