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Interest Rate Parity

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The nominal rate of interest on six-month, risk-free U.S. securities is 6%. In the spot market, $1 U.S. = 104.84 Japanese yen. In the six-month forward market, $1 U.S. = 104.84 Japanese yen. If interest rate parity holds, what is the current nominal interest rate on six-month, risk-free Japanese securities?

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Solution Summary

Solution describes the steps for calculating nominal interest rate on six-month, risk-free Japanese securities.

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Solution:

Nominal interest rate in US=6%, interest rate in 6 months=3%
Nominal interest rate in Japan=R, interest rate in 6 ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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