Today the interest rate in Japan is 3 percent per year and in Canada it is 6 percent per year. The current exchange rate is 110 Japanese yen per dollar, and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar. Which of the following outcomes occur?

Question

Answer

Interest rate parity is not violated.

Answer

Interest rate parity is violated.

Answer

An investor could make a profit by borrowing in Japan and lending in Canada.

Answer

A and C are correct.

Answer

An investor could make a profit by borrowing in Canada and lending in Japan.

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Today the interest rate in Japan is 3 percent per year and in Canada it is 6 per...

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