.2 points Question 3 In Japan, 90-day securities have a 4% annualized return and
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Question
.2 pointsQuestion 3
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?
Answer The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.
The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.
The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.
The spot rate equals the 90-day forward rate.
The spot rate equals the 180-day forward rate.
.2 points
Question 4
Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?
Answer 1 British pound equals 3.2400 Swiss francs
1 British pound equals 2.6244 Swiss francs
1 British pound equals 1.8588 Swiss francs
1 British pound equals 1.0000 Swiss francs
1 British pound equals 0.3810 Swiss francs
.2 points
Question 5
If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
Answer Appreciate against the U.S. dollar.
Depreciate against the U.S. dollar.
Remain unchanged against the U.S. dollar.
Appreciate against other major currencies.
Appreciate against the dollar and other major currencies.
.
Explanation / Answer
3.The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market. 4. 1 British pound equals 2.6244 Swiss francs 5. Appreciate against the U.S. dollar.
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