[Solved] Given the following interest rates on different currencies, which of the following is true? Sterling 6 percent. Euro 3.5 percent. Dollar 6.25 percent. Yen 0.5 percent.

Q.	Given the following interest rates on different currencies, which of the following is true? Sterling 6 percent. Euro 3.5 percent. Dollar 6.25 percent. Yen 0.5 percent.
A.	The dollar must be at a forward premium to the yen because a very high percentage of world trade is carried out in dollars.
B.	The yen must be at a forward premium to the euro because one can borrow yen much more cheaply than euro.
C.	The euro must be at a forward premium to sterling because no one believes that the euro can continue to fall in value.
D.	The dollar must be at a forward premium to the yen because no one would be willing to hold yen at such a low rate of interest.
Answer» B. The yen must be at a forward premium to the euro because one can borrow yen much more cheaply than euro.

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