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6 May, 18:07

Suppose that you are the international treasurer of Apple with an extra U. S. $10 million to invest for 9 months. You are considering the purchase of U. S. T-bills that yield 1.50% annual rate. The spot exchange rate is $1.00 = ¥100, and the 9 month forward rate is $1.00 = ¥110. What must the interest rate in Japan be before you are willing to consider investing there for 9 months? A. 14.5515 B. 13.4983 D. 12.5050

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  1. 6 May, 18:19
    0
    Japan Interest Rate = 0.15%

    Explanation:

    As per Interest Rate Parity Theory

    Spot Rate : 1$ = 100

    Forward Rate : 1 $ = 110

    r = 9/12

    As per interest rate parity, forward rate = Spot rate (1+Interest rate Japan) / (1+Interest rate US)

    Forward rate = Spot rate * (1 + iD) / (1+iF)

    110 / 100 = (1 + Japan Interest Rate * 9 / 12) / 1.01125

    1.1 * 1.01125 = 1 + Japan Interest Rate * 0.75

    1.112375 = 1 + Japan Interest Rate * 0.75

    Japan Interest Rate * 0.75 = 1.112375 - 1

    Japan Interest Rate * 0.75 = 0.112375

    Japan Interest Rate = 0.112375 / 0.75

    Japan Interest Rate = 0.15%
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