Purchase Solution

Interest rate

Not what you're looking for?

Ask Custom Question

Assume that the 180-day interest rate is 1% and 3%, respectively in the U.S. and Japan. Also, the spot rate and 180-day forward rate are equivalent at 120 yen per one U.S. dollar ($.008333 per one Japanese yen). As a trader for a commercial bank with $1,000,000 to invest, could earn a risk-free return by engaging in covered interest arbitrage? Be sure to show your calculations.

I have no idea what to do???

Purchase this Solution

Solution Preview

If the spot rate and 180-day forward rate are the same at 1USD= 120Yen, but the 180-day interest rates are different, the trader can invest to arbitrage.
First, at the beginning, exchange the $1,000,000 into JPY, ...

Purchase this Solution

Free BrainMass Quizzes
Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.


This tests some key elements of major motivation theories.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Learning Lean

This quiz will help you understand the basic concepts of Lean.