Japanese Investor: Investing in U.S. Government Bonds

Investing in U.S. Government Bonds

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Question

A Japanese investor purchasing a U.S. government bond

Answers

A. causes the yen to appreciate.

B. creates a demand for yen and a supply of dollars in the foreign exchange market.

C. causes the dollar to depreciate.

D. creates a demand for dollars and a supply of yen in the foreign exchange market.

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Explanations

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A. B. C. D.

A foreigner must pay for a U.S. bond using U.S. dollars. Therefore, the investor must exchange Japanese yen on the foreign exchange market for U.S. dollars.

This transaction increases the supply of Japanese yen and the demand for U.S. dollars.

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