Question

investor that wants to invest overseas would need to target this in a country and currency...

investor that wants to invest overseas would need to target this in a country and currency which shows

1 a high interest rate and is expected to depreciate in the future
2 a low interest rate and is expected to depreciate in the future
3 a high interest rate and is expected to appreciate in the future
4 a low interest rate and is expected to appreciate in the future


which one?
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Answer #1

Investor that wants to invest overseas would need to target this in a country and currency which shows a low interest rate and is expected to appreciate in the future.

The reason being:

A low interest rate in the target company will lead to appreciation of the currency. An appreciated currency will lead to greater profits. We can understand this by the following example:

"A" from India invested $1 in US and bought a share of a company worth $1 when the exchange rate was 1$ = Rs 70. In 1 year, the share gave no return and was still trading at $1 but the US currency got appreciated to 1$ = Rs 75 and hence his 1$ invested gave him a return of Rs 5 (Rs 75 - Rs 70).

Hence, the correct answer is Option D.

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