Final answer:
An increase in the value of the dollar relative to the yen typically results in a negative effect on the returns for U.S. investors in Japanese stocks, as their investment value decreases when converted back to the stronger dollar. Conversely, a stronger dollar benefits foreign investors in the U.S., and Japanese firms exporting to the U.S. by increasing their returns when converting back to yen. Option B) False is the correct answer.
Step-by-step explanation:
An increase in the value of the dollar relative to the yen does not necessarily have a positive effect on the returns for U.S. investors who invest in the stocks of Japanese firms. A stronger U.S. dollar means that when these investors convert the yen earnings from their Japanese investments back into dollars, they will receive fewer dollars for each yen, assuming the stock prices remain constant in yen terms. This scenario usually results in a decrease in the value of the foreign investment when measured in the stronger currency.
Conversely, a stronger dollar is beneficial for a foreign investor investing in the U.S. When these investors convert from their home currency to dollars to make the investment, and later convert back, if the dollar has grown stronger, they receive more of their home currency upon conversion.
For example, for a Japanese firm selling in the U.S. economy, a stronger dollar is advantageous because each dollar earned through sales can be converted back into more yen. This strengthens the returns on the sales for the Japanese company and might lead to expanded sales or a reduction in prices in the U.S. market, increasing the U.S. imports from Japan as a result.