Assume That the Interest Rate on Borrowings in India Is

question 121

Multiple Choice

Assume that the interest rate on borrowings in India is 1 percent while the interest rate on bank deposits in a U.S.bank is 6 percent.John,an active currency trader borrows in Japanese yen,converts the money into U.S.dollars and deposits it in a U.S.bank.The speculative element of John's carry trade is that its success is based upon his belief that

• A)there will be no adverse movement in exchange rates or interest rates.
• B)liquidity is the key factor in determining interest rates.
• C)increasing money supply will not drive inflation.
• D)spot exchange rates are more favorable than forward exchange rates.
• E)hedging insures a company against foreign exchange risks.

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Definitions:

T Test

A statistical test used to determine if there is a significant difference between the means of two groups, which may be related in certain features.

Least Squares Line

A regression line calculated using the least squares method, aiming to minimize the squares of the differences between observed and predicted values.

Independent Variables

Variables in a study or model that are manipulated to determine their effect on dependent variables.

Dependent Variable

A variable in statistical modeling or experimental design that is assumed to be affected by other variables.