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If interest rate parity holds, what is the 6-m forward rate

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Six-month T-Bills have a nominal rate of 7%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate?

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Solution Summary

Illustrates how to calculate the forward exchange rate under assumption of interest rate parity.

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Spot rate of Yen = $0.009
Interest rate in US=7% For six months period, Interest rate in ...

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