If the Japanese yen is expected to appreciate against the U.S. dollar and interest rates in the United States and Japan are similar, banks may try speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____.
A) yen; dollars
B) yen; yen
C) dollars; yen
D) dollars; dollars

Question

If the Japanese yen is expected to appreciate against the U.S. dollar and interest rates in the United States and Japan are similar, banks may try speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____.​
A) ​yen; dollars
B) ​yen; yen
C) ​dollars; yen
D) ​dollars; dollars

Quizplus · Accepted Answer

Banks would borrow in dollars and invest in yen if they expect the yen to appreciate against the dollar. This way, when they convert their yen investments back into dollars in the future, they would receive more dollars for their yen, making a profit from the appreciation of the yen.

If the Japanese Yen Is Expected to Appreciate Against the U.S