Question:
a) 180-day interest rate is 1% & 3% respectively in the US and Japan
spot rate & 180-day forward rate are equivalent=
120 yen per one US dollar
As a trader of a commercial bank how would I invest $1 million and earn risk free return by engaging in covered interest arbitage.
b) Inflation rate in US and Japan & Japan respectively
Spot rate =$.0083333 per one Japanese Yen or
120Y=1US$
How much does US dollar have to depreciate to maintain purchasing power parity?