If the Yield on a Japanese Government Security Is 6

question 15

Multiple Choice

If the yield on a Japanese government security is 6%, the yield on a U.S.government security of the same maturity is 4%, and the exchange rate of the dollar to the Japanese yen is expected to depreciate by 3%, then

• A)Americans are likely to buy Japanese government securities
• B)Japanese people are likely to buy American government securities
• C)the Fed is likely to intervene in the foreign exchange market by buying Japanese yen
• D)the Japanese central bank is likely to intervene in the foreign exchange market by selling U.S. dollars
• E)both C)and D)

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Definitions:

Utility Function

A mathematical representation of a consumer's preferences, used in economics to model choices made under uncertainty, to maximize satisfaction or utility.

Expected Utility

A concept in economics that calculates the utility expected from an investment, considering all possible outcomes.

Standard Deviation

A measure of the dispersion of a set of data from its mean, indicating how spread out the values in a data set are.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, marking preferences of equal utility.