The spot exchange rate is S(¥120/$1). The U.S. interest rate is 4 percent APR. The Japanese interest rate is 2 percent APR. What is the no-arbitrage 90-day forward rate?
Multiple Choice
¥119.4059/$1
¥122.3529/$1
¥120.5970/$1
None of the options
¥117.6923/$1
(1+ix) = F(x/y) / S(x/y) * (1+iY)
1.02 = F(x/y) / 120 * 1.04
F(x/y) = (1.02*120) / 1.04
F(x/y) = 117.6923
Option 5 is correct
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