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Subjects -> Economics -> Monetary Theory/Policy -> Posting #39927
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Economics, Monetary Theory/Policy
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Foreign Exchange Rates and portfolio adjustments


This question regards international finance specifically the asset market model and exchange rates.

Assume the spot exchange rate between dollars and yen is e=$1/100yen. The interest rate on a 180 day dollar denominated assets is i($)=1% and the interest rate on comparable 180 day yen denominated assets is also i(yen)= 1%. The 180 day forward exchange rate between dollars and yen if e(forward)=$1/90 yen.

I don't understand what (and why), if any, adjustments I should make to my portfolio.  Specifically, what should I do if I'm risk adverse?  What if I don't mind bearing exchange rate risk?

By OTA:  Rohtas Kumar, MBA

OTA Rating:  4.9/5

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