In Japan,90-Day Securities Have a 4% Annualized Return and 180-Day

question 17

Multiple Choice

In Japan,90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return.In the United States,90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%.All securities are of equal risk,and Japanese securities are denominated in terms of the Japanese yen.Assuming that interest rate parity holds in all markets,which of the following statements is most CORRECT?

• A) The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.
• B) The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
• C) The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
• D) The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market.
• E) The relationship between spot and forward interest rates cannot be inferred.

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Definitions:

Antique Reproductions

Replicas or copies of antique items, often made to mimic the style and appearance of the original pieces but created with modern materials or techniques.

Supply Curve

A graphical representation that shows the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply in the market.

Bumper Crops

Exceptionally large harvests of crops, usually resulting from favorable growing conditions.

Gross Incomes

The total income received before any deductions or taxes are subtracted.