Explain what the assumption of interest rate parity implies

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Reference no: EM131082938

Suppose the Japanese yen spot exchange rate is 118 yen = $1.00.

1-Assume that U.S. six-month Treasury bills have an annualized rate of 6.2% while default-free Japanese bonds that mature in six months have an annualized rate of 5.0% and that interest rate parity holds. Find the six-month forward exchange rate in terms of dollars per yen.

2-Explain what the assumption of interest rate parity implies.

Reference no: EM131082938

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