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Calculate the 6-Month Forward Exchange Rate Based on the Nominal Interest Rates on Bonds

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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 Preview

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 ...

Solution Summary

This solution provides formula and calculations for determining the 6-month forward exchange rate.

$2.19