Question

Megahurtz International Car Rentals has rent-a-car outlets throughout the world. It keeps funds for transaction purposes in many foreign currencies. Assume that in 20XX it held 100,000 reals in Brazil worth $42,000. It earned 12 percent interest, but the real declined 20 percent against the dollar.

a. What is the value of its holdings, based on Canadian dollars, at year-end? (Do not round intermediate calculations.) Value of the holdings $

b. What is the value of its holdings, based on Canadian dollars, at year-end if it earned 9 percent and the real went up by 10 percent against the dollar? (Do not round intermediate calculations.) Value of the holdings $

Answer 1

Before any changes, 100,000 reals = $42,000

Thus 1 Real = 42,000 / 100,000 = $0.42

The current quote is Dollar / Reals = $0.42

Requirement a:

Given, real value declined by 20%, thus new value of 1 real= $0.42 x 80% = $0.336

Now the initial balance was 100,000 reals. On this they received interest of 12%

So reals balance now = 100,000 reals x 1.12 = 112,000 reals

Value of holdings in Dollar = 112,000 reals x 0.336 = $37,362

Requirement b:

Given, real value increased by 10%, thus new value of 1 real= $0.42 x 1.10 = 0.462

Now the initial balance was 100,000 reals. On this they received interest of 9%

So reals balance now = 100,000 reals x 1.09 = 109,000 reals

Value of holdings in Dollar 109,000 reals x 0.462 = $50,358