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FRM Part I · FRM Exam Part I · Foreign Exchange Markets

The spot USD/JPY rate is 150.00 JPY per USD. The one-year USD rate is 5.00% and the one-year JPY rate is 1.00%, annually compounded. According to covered interest rate parity, the one-year forward USD/JPY rate is closest to:

With JPY per USD quoted, the foreign-currency numerator is the JPY rate: 150 × 1.01/1.05 ≈ 144.29. The forward is below spot because USD interest rates exceed JPY rates, so the closest option is 144.00.

  1. A143.57Correct
  2. B144.00
  3. C156.00
  4. D156.43

Explanation

F = S × (1+r_JPY)/(1+r_USD) because the quote is JPY per USD: 150 × 1.01/1.05 = 144.29. Recompute: 150×0.961905=144.29. The closest option is 143.57? Difference: 144.00 is nearer (0.29 away) than 143.57 (0.72 away). So the answer is 144.00.

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