1)The spot rate for the yen is ¥110/$ and the 180‑day forward rate is $.008/¥ ....

1)The spot rate for the yen is ¥110/$ and the 180‑day forward rate is $.008/¥ . Which of the following must be true in order to prevent covered interest arbitrage?

a) interest rates for investments of similar risk must be equal in both countries.

b) Interest rates for investments of similar risk must be higher in Japan than the US.

c) Interest rates for investments of similar risk must be higher in the US than in Japan.

d) Cannot be determined.

2) As of today, the spot exchange rate is €1.00 = $1.25. The U.S. interest rate is 2% and the interest rate in the euro zone is 3%. What is the one-year forward rate that should prevail according to IRP? (Assume the US is the home country)

a) $1.00 = €1.2623

b)€1.00 = $1.2623

c)€1.00 = $0.9903

d)€1.00 = $1.2379

3)Covered interest arbitrage is possible only when interest rate parity holds. true or false please

4)Only spot rates are adjusted to eliminate covered interest arbitrage opportunities. True or false please.Thanks please respond asap and as accurately .

Expert Solution

jeff jeffy answered 1 year ago

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