The Next Questions Refer to the Following

question 10

Multiple Choice

The next questions refer to the following.
Suppose the yen-pound exchange rate is currently £1 = ¥300. A Japanese bank borrows £2 million from UK lenders for 1 year at 6% interest, and lends ¥600 million to Japanese borrowers for 1 year at 8% interest.
-This strategy will fail to yield the bank a profit if

• A) the UK inflation rate exceeds 2% during the year
• B) Japan experiences deflation of 2% or more
• C) the pound appreciates by 2%
• D) the yen appreciates by 2% or more
• E) short term interest rates in the UK rise above 8%

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Definitions:

Price Elasticity

An indicator of how sensitive the demand or supply for a product or service is to variations in its cost.

Time Available

The amount of time one has free for activities beyond commitments like work or sleep; may refer to leisure or additional productive time.

Related Goods

Products or services that are either complements (used together) or substitutes (used in place of one another) affecting each other's demand.

Price-Inelastic Demand

A situation where the demand for a good or service is relatively unaffected by changes in its price.