The Australian cash rate is expected to be 2% pa over the next one year, while...

The Australian cash rate is expected to be 2% pa over the next one year, while the Japanese cash rate is expected to be 0% pa, both given as nominal effective annual rates. The current exchange rate is 100 JPY per AUD. What is the implied 1 year forward foreign exchange rate? (a) 98.04 JPY per AUD. (b) 100 JPY per AUD. (c) 102 JPY per AUD. (d) 1.02 AUD per JPY. (e) 0.9804 AUD per JPY.

Expert Solution

Forward Rate = Spot Rate(1 + r_p)/(1 + r_b)

Forward Rate= 100(1 + 0.00)/(1 + 0.02)

Forward Rate = 98.04 JPY per AUD

jeff jeffy answered 2 years ago

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