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What must the spot exchange rate be

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(1) Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of US. T-bills that yield 1-810% (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 : ¥100, and the six month forward rate is $1-00 : ¥110. What must the interest rate in Japan (on an investment of comparable risk) be before you are willing to consider investing there for six months?

(2) Suppose that the one-year interest rate is 5.0 percent in the United States and 3-5 percent in Germany, and the one-year forward exchange rate is $1.16/€. What must the spot exchange rate be?

Reference no: EM133164188

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