Suppose that on January 1st the annual cost of borrowing in JPY and US dollars are 2% and 7% respectively (Rjpy=2% and RUS=7%). The spot rate of USD on January 1st is USD/JPY110 or 110 ¥ per $. One year forward rate was quoted as USD/JPY102 or 102. What is the USD cost of borrowing in JPY? Or what is the rate of borrowing in USD?

-5.4%



2%



10%

7%