In a daily meeting, the Chief Financial Officer (CFO) gave Ari the followingtable of market ratesSpot exchange rate Yen 106/$U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yento depreciateagainst the U.S. dollarby 3.46%in 90 days.Assume there are 360 days in a year, and all interest rates are simple interest rates.If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: b.1) What would the spot exchange rate (Yen/$) be in 90 days? b.2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?If no, explain why.
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the followingtable of market ratesSpot exchange rate
Yen 106/$U.S. dollar
interest rate per annum 10%
Japanese Yen interest rate per annum 6%
and told Ari that the company’s financial analyst expected the Japanese Yento depreciateagainst the U.S. dollarby 3.46%in 90 days.Assume there are 360 days in a year, and all interest rates are simple interest rates.If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true:
b.1) What would the spot exchange rate (Yen/$) be in 90 days?
b.2) Would Ari make a profit by borrowing 1 million US dollar and investing in the
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