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    Interest rate parity

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    Assume that interest rate parity holds. In both the spot market and the 90-day forward market 1 Japanese yen = 0.0086 dollar. And 90-day risk-free securities yield 4.6% in Japan. What is the yield on 90-day risk-free securities in the United States?

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    Solution Summary

    Solution contains step-by-step calculation of periodic interest rate in the home country. It includes the appropriate formula required by the question. This step-by-step calculation provides students with a clear perspective of interest rate parity.