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:

Photos

Visual images captured by recording light or other electromagnetic radiation, either digitally or on a light-sensitive surface such as photographic film.

Framed in Red

A psychological or visual technique where information or objects are presented with a red frame to enhance attention or emotional impact.

Spanked

Struck on the buttocks with an open hand or object as a form of punishment.

Conditioned Stimulus

A previously neutral stimulus that, after becoming associated with the unconditioned stimulus, triggers a conditioned response.