Determine whether interest rate parity holds

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Reference no: EM131325914

The following information was available: Spot rate for Japanese yen: $0.009313 730-day forward rate for Japanese yen: $0.010475 (assume a 365-day year) U.S. risk-free rate: 7.0 percent Japanese risk-free rate: 1.0 percent

a. Assuming annual compounding, determine whether interest rate parity holds and, if not, suggest a strategy.

b. Assuming continuous compounding, determine whether interest rate parity holds and, if not, suggest a strategy.

Reference no: EM131325914

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