Find the exact real interest rate in japan and us

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1. Suppose that S = $1.1045/€ and F=$1.1459/€ (one year). The annualized risk-free interest rates are 2.6% and 1.75% in the U.S and Germany, respectively. If feasible, find the profit earned by a U.S. investor conducting a covered interest arbitrage. Suppose that the U.S. investor is able to borrow $500,000. Make sure to round your answers to the nearest 100th decimal points. For example, write 234.45 for $234.45.

2. Suppose that S = $1.1045/€. The annualized inflation rates are 2.6% and 1.75% in the U.S and Germany, respectively. Find the exact expected currency movement for the euro in 5 years. Express your answers as a percentage. Make sure to round your answers to the nearest 100th decimal points. For example, write 2.45 for 2.45%.

3. Suppose that S = ¥180/$. The annualized risk-free rates are 4.6% and 2.75% in Japan and the U.S., respectively. Find the expected currency movement over the next 3 years. Express your answers as a percentage. Make sure to round your answers to the nearest 100th decimal points.

4. Suppose that S = ¥180/$. The annualized risk-free rates are 4.6% and 2.75% in Japan and the U.S., respectively. The annualized inflation rate is 2% in Japan. Find the exact real interest rate in Japan and the U.S. according to the international Fisher relation. Express your answers as a percentage. Make sure to round your answers to the nearest 100th decimal points.

Reference no: EM132666785

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