Assume that interest rate parity holds. In the spot market1 Japanese yen = $0.009144, while in the 90-day forward market 1 Japanese yen = $0.009184. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day riskfreesecurities in the United States?

Assume that interest rate parity holds. In the spot market1 Japanese yen = $0.009144, while in the 90-day forward market 1 Japanese yen = $0.009184. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day riskfreesecurities in the United States?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Q: Using published sources (for example, The Wall Street Journal, Barron’s, Federal Reserve Bulletin),…

A: U.S. Dollar - Japanese Yen (USDJPY) exchange rate historical chart Year Average Closing Price…

Q: (c) If the one-year interest rate on a dollar denominated Treasury bill is 4.5% p.a. and that on a…

A: The interest rate parity indicates that the forward premium or discount on currency exchange should…

Q: Suppose the dollar interest rate and the pound sterling interest rate are the same, 6 percent per…

A: A rate through which individuals or companies convert their domestic currency with the other…

Q: In the spot market, 1 Philippine peso can be exchanged for 2.51 Japanese yen. In the 1-year forward…

A: This is the question of interest rate parity, hereby "the forward rate premium is equal to the…

Q: A financial institution owns a portfolio of options on the U.S. dollar-sterling exchange rate. The…

A: The proportion of a change in the price of an underlying asset (most often marketable securities) to…

Q: Suppose a US investor purchases a UK equity. Let the expected pound return on the U.K. equity be…

A: r = 0.50

Q: Assume the following information regarding U.S. and European annualized interest rates: Currency…

A: Borrow euro € 20,000,000. Then conversion of € 20,000,000 to $ value is

Q: Assume that interest rate parity holds and that 90-day risk-freesecurities yield a nominal annual…

A: Part (a): Calculation of 90-day forward rate: Answer: 90-day forward rate is $1.28840 Calculation…

Q: Currently, you canexchange 1 euro for 1.25 dollars in the 180-dayforward market, and the risk-free…

A: Interest rate parity states that after adjusting for risk, investors would expect to receive the…

Q: Suppose the current exchange rate is $1.42/€, the interest rate in the United States is 4.0%, the…

A: For the computation of both, N(d1) as well as N(d2) use:

Q: If riskless British govenment debt currently pays 2.5%, and the purchasing power parity value for…

A: The purchasing power parity is that theory which tells that exchange rate of currency will be in…

Q: Assume the following information: 180-day U.S. interest rate 8% 180-day British interest…

A: Here, US Company exports goods to Britain. In 180 days US company will receive 400,000 pounds from…

Q: The nominal yield on 6-month T-bills is 8%, while default-free Japanese bonds that mature in 6…

A: Answer - Forward Rate - A spot rate is the price for an asset that is to be exchanged immediately.…

Q: Assume that 90-day U.S. securities have a 4.5% annualized interestrate whereas 90-day Swiss…

A: Given, Spot Rate =1.2 Interest rate (rf) =5% Interest rate whereas 90-day (rh) =4.5%

Q: Suppose that the 90-day forward rate is $1.17/€, the current spot rate is $1.20/€, and you expect…

A: The difference between the forward rate and the future sot rate shows the profit or loss of the…

Q: Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.00905, while in the…

A: In this we have to use interest rate parity to get the required rate of interest rate.

Q: The prevailing one-year risk-free interest rate in Argentina is higher than in the U.S. and will…

A: Internal fisher effect is theory that states that the difference of nominal interest rate of two…

Q: rates are higher than Japanese interest rates, then the theory of covered interest arbitrage would…

A: As per covered interest arbitrage theory, there is an inverse relationship between interest rate and…

Q: Consider the option on currency HKD against the USD: • Current spot rate is HKD7.50 for 1 USD •…

A: To Find: Value of Call Option(using Garman Kohlgen )

Q: Consider the option on currency HKD against the USD: • Current spot rate is HKD7.50 for 1 USD •…

A: To Find: Value of Call Option (using Garman Kholgen model) Minimum terminal exchange rate for Call…

Q: Assume that interest rate parity holds. In both the spot market and the90-day forward market, 1…

A: Given information: Home country spot rate is 0.0086 Forward price of home country is 0.0086, 90-day…

Q: Fund Y invests in Asian equity markets. The portfolio holdings include Chinese stocks valued at RMB2…

A: A forward contract is a derivative that helps the investor to fix the inflow or outflow of a…

Q: Sappose that the Eurorone is the domestic country and the United States is the foreign country. The…

A: Annual inflation rate can be defined as that inflation rate which is expected to be prevailing in…

Q: A financial institution has just sold 1,000,000 6-month European call options on the Japanese yen.…

A: Spot Rate 0.8 Time period 6 months Strike Rate 0.81 Volatility 10% Rfe-USA 2.5% Rfe-Yen…

Q: The spot rate for the Japanese yen currently is A??Y107 per $1. The one-year forward rate is A??Y106…

A: Given:Spot rate for japanese currently yield=107 per $1One year forward rate is 106 per $1Risk free…

Q: Assume the following information: 90-day Ghana interest rate = 4% 90-day South African interest rate…

A: The international financial market involves the fluctuation in the exchange rates of the currencies.…

Q: Suppose that the spot price of a Canadian dollar is U.S. $0.89 and that the exchange rate has a…

A: Spot price : The spot price is the current market price at which a certain asset can be bought or…

Q: Today, $1 = 1.82 Euro and $1 = 130 Korean Won. In the 90-day forward market, $1 = 1.84 Euro and $1 =…

A: Acorxding to interest rate parity theory, the currency of a country which has higher interest rate…

Q: Assuming that existing U.S. one year interest rate is 8% and the Canadian one-year interest rate is…

A: Arbitrage refers to the situation of simultaneous buying and selling of the same securities or…

Q: that Volt Cars Co. (a European company with headquarters in Luxembourg) will receive E154000 in 45…

A: to find the answer, first we will find the amount that Volt cars will receive if it hedges its…

Q: You have the following spot bid and ask rates between the Australian dollar (AUD), the Danish krone…

A: Here, We have assumed investment of AUD 1,000

Q: Assume the spot rate on the New Zealand dollar is NZ$1.0926, the risk-free nominal rate in the U.S.…

A: Forward rate ( NZ$, US$ ) = Spot rate ( NZ$, US$ ) * [ 1 + Interest rate NZ $ ]n / [ 1 + Interest…

Q: Assume that 90-day U.S. securities have a 2.9% annualized interest rate, whereas 90-day Canadian…

A: The given problem can be solved using interest rate parity.

Q: Assuming that interest rate parity holds. In both the spot market and the 90 day forward market, 1…

A: The computation as follows: The one Japanese yen in spot market is .0089 The forward rate of one…

Q: In a market with an unchanged current exchange rate where the interest parity condition holds, if…

A: Interest rate parity is a no-arbitrage condition in which investors are unconcerned about interest…

Q: Assume that 90-day U.S. securities have a 2.9% annualized interest rate, whereas 90-day Canadian…

A: Given, US interest rate = 2.9% or 0.029 Canadian interest rate = 3.2% or 0.032 Exchange rate…

Q: Assume you can exchange $1 for either £1.0 or €0.50 in the U.S. In the London market, you can…

A: In this situation, profit can be earned by using the triangle strategy. By using triangle strategy,…

Q: The spot rate between Japan and the U.S. is ¥100.37 = $1, while the one-year forward rate is ¥99.97…

A: Interest rate parity Interest rate parity refers to the state where forward exchange rate is…

Q: Assume that interest rate parity holds. In both the spot market and the 90-day forward market, 1…

A: Forward rate is the price of the contract that will be executed at some future pre-specified date.…

Question

Assume that interest rate parity holds. In the spot market
1 Japanese yen = $0.009144, while in the 90-day forward market 1 Japanese yen = $0.009184. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day riskfree
securities in the United States?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Assume that interest rate parity holds. In both the spot market and the90-day forward market, 1 Japanese yen equals 0.0086 dollar. In Japan,90-day risk-free securities yield 4.6%. What is the yield on 90-day risk-freesecurities in the United States?
Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.00905, while in the 90-day forward market 1 Japanese yen = $0.00913. In Japan, 90-day risk-free securities yield 1%. What is the yield on 90-day risk-free securities in the United States? Do not round intermediate calculations. Round your answer to two decimal places.
Today, $1 = 1.82 Euro and $1 = 130 Korean Won. In the 90-day forward market, $1 = 1.84 Euro and $1 = 127 Korean Won. Which of the following statements is most correct when interest rate parity holds? Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Euro securities. Since interest rate parity holds, interest rates should be the same in all three countries. Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Korean securities. Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Korean securities.
Quantitative Problem: Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.008, while in the 180-day forward market 1 Japanese yen = $0.0087. 180-day risk-free securities yield 1.25% in Japan. What is the yield on 180-day risk-free securities in the United States? Do not round intermediate calculations. Round your answer to two decimal places.
Assume that interest rate parity holds and that 90-day risk-free securities yield 3% in the United States and 3.3% in Germany. In the spot market, 1 euro equals $1.50. What is the 90-day forward rate?
Assuming that interest rate parity holds. In both the spot market and the 90 day forward market, 1 Japanese ye equals .0089 dollar. In Japan, 90-day risk free securities yield 4.3%. What is the yield on 90-day risk free securities in the US? Do not round intermediate calculations. Round your answer to two decimals places.
Assume that interest rate parity holds. In both the spot market and the 90-day forward market, 1 Japanese yen equals 0.0088 dollar. In Japan, 90-day risk-free securities yield 4.4%. What is the yield on 90-day risk-free securities in the United States? Do not round intermediate calculations. Round your answer to two decimal places.
Assume that interest rate parity holds and that the 90-day risk-free securities yield is 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40 (1.4 dollars per euro). What is the 90-day forward rate? rh 1.25% 5.0% rf 1.33% 5.3% Euro 0.7143 $1.40 Spot Rate Forward Rate 1.943396 Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
Suppose that investors are risk-neutral and the linear UIP equation holds. You are given the following information: UK interest rate: i = 0.07 US interest rate: i* = 0.02 Expected future spot rate e^e = 8. What is the current spot rate, e? (State your answer as a number to 2 decimal places. Exchange rates are Pounds per Dollar, in natural logs)
A financial institution owns a portfolio of options on the U.S. dollar-sterling exchange rate. The delta of the portfolio is 62 . The current exchange rate is 1.56 . Derive an approximate linear relationship between the change in the portfolio value and the percentage change in the exchange rate. If the daily volatility of the exchange rate is 0.76% , estimate the 10-day 99% VaR. [CH22Q2V7] O 5.61 5.41 5.8 O 6
Assume that interest rate parity holds and that 90-day risk-freesecurities yield a nominal annual rate of 3% in the United States and a nominal annual rateof 3.5% in the United Kingdom. In the spot market, 1 pound = $1.29.a. What is the 90-day forward rate?b. Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
In the spot market, 1 Philippine peso can be exchanged for 2.51 Japanese yen. In the 1-year forward market, 1 Philippine peso can be exchanged for 2.53 Japanese yen. The 1-year, risk-free rate of interest is 5 percent in the Philippines. If interest rate parity holds, what is the yield today on 1-year, risk-free Japanese securities?