Today, the Japanese yen - Canadian dollar exchange rate is 98

Finance May 02, 2021

Today, the Japanese yen - Canadian dollar exchange rate is 98.00. What is the 2-year forward exchange rate if the Japanese yen interest rate is 0.2404% and the Canadian dollar interest rate is 1.08%? Assume these rates are continuously compounded.
Select one:
a. 99.381 JPY/CAD b. 99.831 JPY/CAD c. 98.642 JPY/CAD d. 96.368 JPY/CAD Q e. 96.638 JPY/CAD

Expert Solution

Computation of 2 Year Forward Exchange Rate:

(fR) Yen/CAD = sR ((1+Interest Rate)^n)/((1+Interest Rate)^n)

= 98 ((1+0.2404%)^2)/((1+1.08%)^2)

= 98 * 1.005/1.022

= 98 * 0.98336

(fR) Yen/CAD = 96.369

So, the correct option is D "96.368 JPY/CAD".

The difference is due to rounding off figures.

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