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Can you please help me understand this for my final!! thank you so much

5. (10 pts) Suppose that the dollar-yen spot exchange rate is $0.0090/\ and the 90-day forward exchange rate is $0.0091/¥. Th

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Answer #1

a. Forward Rate =Spot Rate*(1+US rate)^(90/360)/(1+Japan rate)^(90/360)
0.0091 =0.0090*(1+6%)^(1/4)/(1+Japan Rate)^(1/4)
(1+japan rate)^(1/4) =0.0090*(1+6%)^(1/4)/0.0091
Japan rate =1.003524^4-1 =1.42%

b. Forward Rate =Spot Rate*(1+US rate)^(90/360)/(1+Japan rate)^(90/360)
=0.0090*(1+8%)^(1/4)/(1+1.41707%)^(1/4) =0.009143 or 0.0091

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