Question

Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a one-year mexican bond that pays 10% interest. Next year, the exchange rate is 11 pesos per dollar. Assuming you convert your funds back to u. S. Dollars, how much money will you have in one year?.

Answer 1

The amount of money I would have in US dollars would be $1,000

How much would I have in US dollars?

The first step is to convert dollars to pesos:

$1000 x 10 = 10,000 pesos

The second step is to determine the value of the investment in a year's time: (1.10) x 10,000 = 11,000 pesos

Now, convert pesos to dollars : 11,000 / 11 = $1,000

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