When the Nominal Exchange Changes from 120 Yen Per Dollar

question 13

Multiple Choice

When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has:

• A)appreciated.
• B)depreciated.
• C)become overvalued.
• D)become undervalued.

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Definitions:

Normal Backwardation

A market condition in which the futures price is below the expected spot price, often occurring in markets expecting the price of the underlying asset to rise.

Risk Premiums

The extra return expected by investors for taking on additional risk compared to a risk-free asset.

Systematic Risk

A risk associated with the entire market or a segment of it, which cannot be lessened by diversifying holdings.

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield of government bonds.