What is the amount of mispricing

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Reference no: EM131977013

Question: A foreign exchange arbitrageur notices that the Japanese yen to U.S. dollar spot exchange rate is ¥108/$ and the three-month forward exchange rate is ¥107.30/$. The three-month $ interest rate is 5.20 percent per annum and the three-month ¥ interest rate is 1.20 percent per annum.

a) Is the interest rate parity holding? which is currency is undervalud and what is amount of mispricing?

Reference no: EM131977013

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