Indirect or a direct rate

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Reference no: EM139100

Q. If the spot rate for Japanese Yen is 80 Yean equals 1 US $, and the annual interest rate on fixed rate one-year deposits of Yen is 1% and for US$ is 2.5%, Illustrate what is the eight month forward rate for one dollar in terms of Yen? Assuming the same interest rates, Illustrate what is the 18-month forward rate for one Yen in dollars ($)? Illustrate that this is an indirect or a direct rate? If the forward rate is an accurate predictor of replacement rates in this case will the Yen get stronger or weaker against the dollar? Illustrate what does this indicate about the market's inflation expectations in Japan compared to the US?

Reference no: EM139100

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