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Given:

The Spot Exchange Rate (R) between the British Pound and the Japanese Yen is Y190.00/L

The Six Month foward rate (F) is Y199.0476/L

British six-month government bonds offer an interest rate of 5%

Assuming that the global finaincial markets are perfectly efficent, what interest rate should Japanese six-month government bonds be offering? Using this formula:
1+i=(1/R)(1+i*) F=(1+i*)(F/R)

(i= domestic int rate; i*=foreign int rate)

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Solution Summary

The expert determines how to solve an equation using formulas. A British six-month government bonds which offer an interest rate are found.

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