Suppose that one-year treasury bills yield 8 percent in the United States and 6 percent in Japan. Investors will prefer to purchase the U.S. securities, unless they expect the dollar to __________ against the yen over the next year.
A) depreciate by less than 2 percent
B) depreciate by more than 2 percent
C) appreciate by less than 2 percent
D) appreciate by more than 2 percent

Question

Quizplus · Accepted Answer

Investors will prefer U.S. securities due to the higher yield unless they expect the dollar to depreciate by more than 2 percent against the yen, which would negate the higher interest advantage of the U.S. securities.

Suppose That One-Year Treasury Bills Yield 8 Percent in the United