Question

Calculate the dollar rate of return on a 10 comma 00010,000 pound sterling deposit in a London bank in a year when the interest rate on pounds is 77 percent and the​ dollar/pound exchange rate moves from ​$1.231.23 per pound to ​$1.421.42 per pound.

Answer 1

Answer: 92.7%

Explanation:

Due to the depreciation of the Dollar against the Pound, the foreign denominated deposit will have an even higher return.

Let's calculate that return.

= New Exchange rate - Former exchange rate / Former exchange rate

= 1.42142 - 1.23123 / 1.23123

= 0.15447

= 15. 4%

There is a gain of 15.4%.

In order to get the total dollar rate of return we add this just calculated return to the interest rate on pound which is 77%.

= 77 + 15.4

= 92.7%

In dollars then the return is 92.7%.

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