Borrowing and lending actions in the money market

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Reference no: EM13751391

The 90-day JPY (yen) interest rate is 2%, the 90-day USD interest rate is 5% (both interest rates at annualized rate), the current USD-JPY exchange rate is US$.01 per JPY, the 90-day forward rate quote from the bank is US$.010 per JPY.

Show and explain the set of (a) borrowing and lending actions in the money market and (b) position in the forward market to lock in a risk-free profit. Assume available capital of 10M USDs (or 1B JPYs @ 100JPYs per USD) for this trade.

Reference no: EM13751391

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