If the Japanese yen is expected to appreciate against the U.S. dollar and interest rates in the U.S. 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

Quizplus · Accepted Answer

Banks would borrow dollars and invest in yen to benefit from the expected appreciation of the yen against the dollar, potentially earning a profit when converting back to dollars later.

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