Answer:
=Y= 98.56 / $1
Explanation:
A Japanese investor can earn a 1 percent annual interest rate in Japan or about 3.5 percent per year in the United States.
If the spot exchange rate is 101 yen to the dollar, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investment.
1 + interest rate in US = Spot rate x (1 + interest rate in Japan)
Therefore (1 + 3.5%) = ($1 / 101 yen) x (1 + 1%) (x)
1.035 = 0.0099 x 1.01 (x)
Therefore x = 103.5
103.5 / 101 = 1.02475
1.02475 x spot rate = 98.56
