Suppose that the risk-free rates in the United States and in Japan are 5.25% and 4.5%, respectively. The spot exchange rate between the dollar and the yen is $0.008828/yen. What should the futures price of the yen for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs?
A. $0.009999/yen
B. $0.009981/yen
C. $0.008981/yen
D. $0.008891/yen
D. $0.008891/yen
$0.008828 (1.0525/1.045) = $0.008891/yen.
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