Suppose That the Australian Interest Rate Is 5 Per Cent

question 60

Multiple Choice

Suppose that the Australian interest rate is 5 per cent and the Japanese interest rate is 1 per cent. The effect of this difference in the foreign exchange market is that

• A)investors expect the yen to appreciate against the dollar.
• B)a Japanese investor is guaranteed to make an additional 4 per cent in yen terms by investing in Australia.
• C)investors expect the yen to depreciate against the dollar.
• D)all funds flow to Australia to get the higher interest rate.