Question

if you are a Japanese producer who sells product in the us, you want a foreign exchange future market. so, you borrow money in dollars with an interest rate of 5% and immediately convert it to yen at a rate of 1 dollar of 100 yen. Then you put the money in a japanees interest bearing account with an interest rate of 10%.what is the forward exchange rate in this case?

1)94.88 yen to dollars
2)105.12 yen to dollars
3)104.76 yen to dollars
4)95.45 yen to dollars ​

Answer 1

No Mate sorry... I'm Afghani not Japanese...

Answer 2

3)104.76 yen to dollars

[spot exchange rate ¥:$]×(1+[interest rate ¥])/(1+[interest rate $]), so plugging in the numbers, we have 100×(1+0.10)/(1+0.05) = 100×1.10/1.05 = 104.76 yen to dollars.