. Consider the data given below. The one-year rates can be viewed as spot interest rates, and the two-year rates are yields to maturity in annualized percent
.
The spot exchange rate is ¥130.15/£.
What should be the two-year forward rate to prevent arbitrage?
Homework Answers
=Spot Yen/Pound*(1+Japan rate)^t/(1+UK rate)^t
=130.15*(1+0.435%)^2/(1+1.87%)^2
=126.509089 Yen/Pound
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