If the yield on a Japanese government security is 6%, the yield on a U.S.government security of the same maturity is 4%, and the exchange rate of the dollar to the Japanese yen is expected to depreciate by 3%, then
A)Americans are likely to buy Japanese government securities
B)Japanese people are likely to buy American government securities
C)the Fed is likely to intervene in the foreign exchange market by buying Japanese yen
D)the Japanese central bank is likely to intervene in the foreign exchange market by selling U.S. dollars
E)both C)and D)

Question

Quizplus · Accepted Answer

Given the higher yield on Japanese government securities (6%) compared to U.S. government securities (4%), and the expectation that the dollar will depreciate against the yen by 3%, Americans would find Japanese government securities more attractive. This is because the total return from investing in Japanese securities would be higher when considering both the yield and the potential gains from currency appreciation.

If the Yield on a Japanese Government Security Is 6