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

question 30

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 180-day forward market.
• B) The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
• C) The spot rate equals the 90-day forward rate.
• D) The spot rate equals the 180-day forward rate.
• E) The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.

---

Definitions:

Deposits In Transit

Funds that have been deposited by a company but have not yet been recorded by the bank.

Bank Debit Memo

A notice from a bank reducing a customer's account balance due to charges like fees or corrections.

NSF Check

A check that cannot be processed due to insufficient funds in the account it's drawn on.

Petty Cash Fund

A small amount of cash kept on hand for minor, incidental expenses of a business.