Describe how you construct the uncertain yen-denominated return from investing 1 yen in the Swiss franc money market
What will be an ideal response?
If you invest yen in the Swiss money market, you first must convert from yen into Swiss francs in the spot foreign exchange market. With the Swiss francs that you get, you invest in the Swiss money market, leaving the investment unhedged. At the end of the investment horizon, you convert from Swiss francs back into yen at the future spot exchange rate.
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