The annual interest rate in the U.S. is 4.55%, the direct spot quote for the yen...

The annual interest rate in the U.S. is 4.55%, the direct spot quote for the yen is $0.007042/¥ and the 1-year interest rate in Japan is 2.15%. Per forward expectations parity, what do you expect the exchange rate will be in one year?

Expert Solution

Exchange Rate after one year =	Spot Rate *	(1+interest rate of US)
			(1+interest rate of Yen)
=	0.007042 *	(1+4.55%)
			(1+2.15%)
=	$0.00721/Yen

jeff jeffy answered 2 years ago

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