Suppose the Spot Market Exchange Rate Is Currently ¥180 =

Multiple Choice

Suppose the spot market exchange rate is currently ¥180 = £1,the one-year risk-free interest rate in Japan is 2% and the one year risk-free interest rate in Great Britain is 5%. Japanese who buy British bonds without covering their transactions with a forward contract must believe

A) that the yen will appreciate more than 3% against the pound sterling
B) that in one year, ¥183.6 will be worth less than £1.05 on the spot market
C) that interest rates will rise in Japan and fall in Great Britain
D) that one-year forward exchange rate is £1 = ¥171
E) that the spot market has undervalued the yen relative to the pound sterling