Interest rate parity
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Six-month t-bills have a nominal rate of 7 percent, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5 percent. In the spot exchange market, 1 Yen equals $0.009. If interest parity holds, what is the 6-month forward exchange rate?
Please show calculations.
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Solution Summary
The solution calculates 6-month forward exchange rate, given spot rates and interest rates.
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Six-month t-bills have a nominal rate of 7 percent, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5 ...
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