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.

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Definitions:

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, preparing the books for the next period.

End-Of-Period Spreadsheet

A financial report used to compile and summarize the accounting information at the end of an accounting period, including balances for assets, liabilities, and equity.

Income Statement Columns

Divisions in the income statement document that categorize and display revenues, expenses, and profit or loss data.

Net Income

A company's profit margin post the deduction of all expenses and taxation from the total revenue.