Question

Question 2 0/1 pts If the interest rate on short term US government debt is 1.1, the comporarable rate for Japanese government debt is 1, and you can buy 111 yen with a dollar, how many yen will you be able to buy with a dollar 1 year from today? You Answered Correct Answer 105.7 margin of error +/- 0.1

Answer 1

Solution:

Current spot price

1$ = 111 ¥

Interest rate in the US is 1.1% while the same is 1 % in Japan

Future rate = spot rate * ( 1+ interest rate in Japan ) / ( 1 + interest rate in the US ) = 111 * ( 1+1%) / (1+1.1%) = 111*1.01/1.011 = 110.89

Correct answer has to be 110.89