An investor in London can acquire two-year UK government bonds with an annual nominal interest...
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An investor in London can acquire two-year UK government bonds with an annual nominal interest rate of 2.5%. Alternatively a two-year Japanese government bond is available at 1.2% annual nominal interest rate. The spot exchange rate is 140 yen per pound. Do financial markets expect the pound to appreciate or depreciate against the yen? What is the two year forward rate of the yen against the pound for the covered interest parity to hold?
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