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Q.4194 Assuming a forward rate of $0.40/JPY, a one-year interest rate for the U.S. currency of 5%, and a spot rate of $0.5/JPY, calculate the current one-year JPY interest rate that will satisfy the covered interest rate parity. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

The correct answer is C.

\frac{F}{S} = \frac{1 + r}{1 + r^*}

r^* = (1 + r)\frac{S}{F} - 1

= ((1 + 0.05) \times \frac{0.50}{0.40}) - 1 = 0.3125

JPY interest rate 31.25%

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Q.4194 Assuming a forward rate of `$0.40`/JPY, a one-year interest rate for the U.S. currency of 5%, and a spot rate of `$0.5`/JPY, calculate the current one-year JPY interest rate that will satisfy the covered interest rate parity.

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