Is there an opportunity for covered interest rate arbitrage

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Reference no: EM131979240

International Finance

1. Suppose that three-month interest rates (annualized) in Japan and the United States are 6 percent and 8 percent, respectively. If the spot rate is ¥125=$1 and the 90-day forward rate is ¥115=$1:

a. Is there an opportunity for covered interest rate arbitrage?

b. How would you arbitrage? What is the arbitrage profit if any?

c. Where would you invest?

d. Where would you borrow?

2. Fisher domestic. The nominal interest rate in France is 3.5%, and expected French inflation is 2.0%. What is the real interest rate in France?

Reference no: EM131979240

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