Question

A US investor can invest $60 US in the US or in Japan. The US interest rate is 13% and the Japanese interest rate is 11%. The current exchange rate is $1 US buys 8.5 Yen, and the investor believes the future exchange rate will be 8.8 Yen. Then the US investment yields a future value of ____ US dollars and the Japanese investment yields ____ US dollars.

Group of answer choices

64.5; 63.2

64.5; 64.3

67.8; 63.2

67.8; 64.3

Answer 1

Solution:-

US investment yields a future value of = 60 x (1 + 13%)

                                                                          = 60 * 1.13

                                                                          = $ 67.8

Japanese investment yields (Yen) = 60 x 8.5 x (1 + 11%)

                                                                  = 510 * 1.11

                                                                  = 566.1 yen

Japanese investment yields (US $) = 566.1 / 8.8 = $ 64.33