Let the spot rate be Yen 100 / $ and the 3-month forward rate be Yen 99/$. Compute the interest rate differential between the U.S. and Japan at which interest rate parity will hold true.

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Q: Let the spot rate be Yen 100 / $ and the 3-month forward rate be Yen 99/$. Compute the interest rate…

A: solution forward rate(yen/$)       =99 spot rate (yen /$)            =100 as per the interest rate…

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Q: please step by step solution.

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A: Forward rate can be calculated as = Spot rate x (1+Foreign Country Interest Rate) / (1+ Domestic…