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Suppose you observe the following exchange rates and interest rates for the USD and JPY:     Bid Ask USD/JPY 105.20 105.95 USD,JPY F,360 104.25 105.10     Trader lends at Trader borrows at I USD ? ? I JPY 1.40% 1.50%   Which answer is closest to the maximum US lending rate that prevents covered interest rate arbitrage?   3.21% 3.16% 3.05% 2.32% 2.42%

Suppose you observe the following exchange rates and interest rates for the USD and JPY:     Bid Ask USD/JPY 105.20 105.95 USD,JPY F,360 104.25 105.10     Trader lends at Trader borrows at I USD ? ? I JPY 1.40% 1.50%   Which answer is closest to the maximum US lending rate that prevents covered interest rate arbitrage?   3.21% 3.16% 3.05% 2.32% 2.42%

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you observe the following exchange rates and interest rates for the USD and JPY:

 

 

Bid

Ask

USD/JPY

105.20

105.95

USD,JPY F,360

104.25

105.10

 

 

Trader lends at

Trader borrows at

I USD

?

?

I JPY

1.40%

1.50%

 

Which answer is closest to the maximum US lending rate that prevents covered interest rate arbitrage?

 

3.21%

3.16%

3.05%

2.32%

2.42%



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