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(Solution document) Throughout the 1990s interest rates in Japan were lower than interest rates in the United States.


Throughout the 1990s interest rates in Japan were lower than interest rates in the United States. As a result many Japanese investors were tempted to borrow in Japan and invest the procedes in the United States, which of the following explains why this strategy does not represent an abritrage opportunity

select best choice

A. Most Japanes investors were prohibited by law from taking advantage of this opportunity

B. Engaging is such transactions my incur a loss  if the value of the US dollar falls relative to the Japanese yen. Because a profit is not guaranteed, this strategy is not an arbitrage opportunity.

C. It is an arbritrage opportunity

D. Other things beside money enter the picture by investing oversee, Japan looks weak and so this is regarded to as an unpatriotic act. when the cost of appearing unpatriotic is taken into account the profits are erased

 

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