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

question 15

Multiple Choice

In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In Canada, 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 statement about the exchange rate is true?

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

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Definitions:

Unpleasant Side Effects

Negative outcomes or consequences that may occur as a result of a particular action or policy.

Pollution

Pollution is the introduction of harmful substances or products into the environment, negatively impacting the planet's ecosystems and human health.

Market System

An economic system where decisions about production, investment, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

Command-and-control

A type of regulation where the government sets specific limits for pollution emissions and may also mandate specific pollution control technologies.