1. If the forward exchange rate of the yen in terms of dollars is greater than t
ID: 1090724 • Letter: 1
Question
1. If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate:
A) Japanese interest rates must be higher than U.S. interest rates.
B) U.S. interest rates must be higher than Japanese interest rates.
C) Market participants must be expecting the dollar to appreciate against the yen.
D) Market participants must be expecting the dollar to depreciate against the yen.
2. Under what condition would you maximize your return from investing in Japanese assets vs U.S. assets:
A) Annual rate of return on U.S. assets = 6%, annual rate of return on Japanese assets = 8%, dollar is expected to depreciate by 10% against the Japanese yen during the next year.
B) Annual rate of return on U.S. assets = 6%, annual rate of return on Japanese assets = 8%, dollar is expected to appreciate by 10% against the Japanese yen during the next year.
C) Annual rate of return on U.S. assets = 12%, annual rate of return on Japanese assets = 6%, dollar is expected to depreciate by 10% against the Japanese yen during the next year.
D) Annual rate of return on U.S. assets = 12%, annual rate of return on Japanese assets = 6%, dollar is expected to appreciate by 10% against the Japanese yen during the next year.
Explanation / Answer
Annual rate of return on U.S. assets = 6%, annual rate of return on Japanese assets = 8%, dollar is expected to appreciate by 10% against the Japanese yen during the next year.
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