What happens if interest rate parity is violated

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Reference no: EM131963360

The annual, riskless, nominal interest rate in Japan is 3%. The spot rate between the yen (JPY) and the dollar (USD) is USD 0.009791 / JPY and the 90-day forward rate between the yen and the dollar is USD 0.009932 / JPY.

a) What is the annual, riskless, nominal interest rate in the US if interest rate parity holds?

b) What happens if interest rate parity is violated? Explain

Reference no: EM131963360

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