Question

Henry borrows ¥100,000 at an interest rate i_¥=1.5%; converts it into Australian dollars(AU$) at the current spot rate S(¥/AU$)=80; deposits the funds in a Australian savings account for a year at interest rate i_AU$=7.5%. At the end of year, Henry converts his revenue in back into funding currency at the spot rate S₁(¥/AU$). If the spot rate is S₁(¥/AU$)=75, Henry’s net profit/loss is

Select one:

a. ¥781.25

b. ¥13166.67

c. - ¥13166.67

d. - ¥718.75

e. ¥718.75

Answer 1

a	Amount borrowed in yen =			100,000
b	AUD amount= 100000/80			1250
c	Interest on saving = 1250*7.5%		93.75
d	Total AUD avaiable =			1343.75
e	Yen amount by selling AUD =		100781.3
	d*75
f	Interest on Yen borrowed =			1500
	100000*1.5%
g	Yen payable =			101,500
	100000+1500
h	Net loss=e-g			(718.75)
	Ans =			d. - ¥718.75