If Japanese yen floating rates are well below US dollar floating rates, then a fairly-priced basis swap that exchanges Japanese floating rates (plus a spread) for US floating rates must have
A) a positive spread to compensate for the lower Japanese interest rates.
B) a negative spread to compensate for the likely appreciation of the yen against the dollar.
C) zero spread.
D) Any of the three are possible.

Question

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The Answer of If Japanese yen floating rates are well below US dollar floating rates, then a fairly-priced basis swap that exchanges Japanese floating rates (plus a spread) for US floating rates must have
A) a positive spread to compensate for the lower Japanese interest rates.
B) a negative spread to compensate for the likely appreciation of the yen against the dollar.
C) zero spread.
D) Any of the three are possible.

If Japanese Yen Floating Rates Are Well Below US Dollar