What happens when a country such as Japan dumps American Bonds?
What happens to the exchange rate?
What happens to the money supply?
What happens to the bond prices and yields/interest rates?
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Japanese investors increase their investments in dollar denominated securities in order to stem the appreciation of the yen. If these dollar denominated investments depreciate, yen loses value. If they buy bonds, this time the dollar strengthens ...
Japanese investors are studied.
Evaluating investment opportunity: Japan example
You have an investment opportunity in Japan. It requires an investment of $1 million today and will produce a cash flow of Y114 in one year with no risk. Suppose the risk free interest rate in the US is 4%, the risk free interest rate in Japan is 2%, and the current competitive exchange rateis Y110 per $1. What is the NPV of the investment? Is it a good opportunity?View Full Posting Details