Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar. a. What is the value of its holdings, based on U. S. dollars, at year-end

Answer: $144,704

Explanation:

Given the following;

Worth of 240,000 reals = $170,000

Annual interest = 12%

Real's decline against the dollar = 24%

Value of 240,000 Real's based on U. S dollars at the end of the year:

AT 12% interest:

(1 + 0.12) * $170,000

$170,000 + $20,400

Value after interest=$190,400

Value of real declines against the dollar by 24%:

Meaning real is now 1 - 0.24 = 0.76

That is, the Brazilian real declined further from it's previous valuation

Final value at year end:

0.76 * $190,400 = $144,704

Inital rate 1$ = 1.411 reals

1) After interest the value in dollars = 1.12*170000=190,400

In same period the Real declined 24% against dollar

Value in USD=190400*.76=$144,704

b)

After interest of 9% the value in dollars = 1.09*170000=185,300

In same period the Real up by 13% against dollar

Value in USD=185300*1.13=$209,389