Value of US bond = $100,000 x 1.05 = $105,000
Exchange Rate Relationships
Example - You have the opportunity to invest $1,000,000 for one year. All
other things being equal, you have the opportunity to obtain a 1 year
Japanese bond (in yen) @ 0.25 % or a 1 year US bond (in dollars) @ 5%.
The spot rate is 112.645 yen:$1 The 1 year forward rate is 107.495 yen:$1
Which bond will you prefer and why? Ignore transaction costs.