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13 April, 12:59

Calculate the dollar rate of return on a 10,000 pound sterling deposit in a London bank in a year when the interest rate on pounds is 5 percent and the dollar/pound exchange rate moves from $1.65 per pound to $1.51 per pound.

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Answers (2)
  1. 13 April, 13:50
    0
    8.48%

    Explanation:

    First we calculate the future value of the investment of 10,000 pound invested at an interest rate of 5% for one year.

    Future value = 10000 (1+0.05) ^1

    Future Value = 10,500.

    Now converting that into dollar:

    At $1.65 per pound = $17,325

    At $1.51 per pound = $15,855

    Hence the dollar has gained its value against the pound sterling by almost 8.5%.

    Good luck and cheers.
  2. 13 April, 14:56
    0
    Answer is given below.

    Explanation:

    There were 10,000 pounds were invested which was worth 10,000 * $1.65 = $16500 dollars

    10,000 after 1 year becomes 10,500 with 5% rate of interest.

    Now exchange rate is 1.51 euro / per dollar which makes 10,500 euros is worth 10,500 * 1.51 = $15,855.

    Rate of return = [ ($15,855 - $16500) / $16500] * 100 = 3.9%
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