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The carry trade relates to: a
The carry trade relates to: a. Borrowing in a low-interest rate currency and converting the borrowed amount into another high interest rate currency. b. Borrowing in a low-interest rate currency and converting the borrowed amount into another low interest rate currency. c. Borrowing in a high-interest rate currency and converting the borrowed amount into another low interest rate currency. d. None of the above fler 15. If the Japanese Yen appreciates 5% against the US and the Euro appreciates 3% against the US $ then the cross-rate will show: c. The Japanese Yen depreciating against the Euro. b. The Japanese Yen appreciating against the Euro 3% c. The US $ depreciating more against the ven than the Euro. -> 10°C d. None of the above SHORT ESSAY QUESTION EXAMPLES ????
15. If the Japanese Yen) appreciates 5% against the US's and the Euro appreciates 3%)against the US $ then the cross-rate will show: The Japanese Yen depreciating against the
Expert Solution
Q14) A) Borrowing in a low interest rate currency and converting the borrowed amount into another higher interest rate currency
Explanation: A carry trade is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return. So option A is right.
Q15) B) The Japanese yen appreciating against the euro
Explanation: As the appreciation of yen is more than that of euro in terms of dollars, so the yen will be higher in cross rate with euros.
For eg:- if both rate yen/ dollars and euro/dollars is equal to 1, then the cross rate (yen/euro) will be equal to 1.
After appreciation
Yen/dollars = 1.05
Euro/dollars = 1.03
Cross rate = yen/ dollar × dollar/ euro
= 1.05 × 1/1.03
= 1.05 / 1.03
= 1.02
Therefore, the appreciation in yen is more than that in euros.
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