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

If the yen is expected to appreciate against the dollar, banks would borrow dollars and convert them into yen to invest, expecting the value of their yen investments to increase as the yen appreciates.

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