Question: 2. Consider an example of rate-of-return calculation. Suppose that Foreign bank pays 10% annual interest rate in cF. Right now, the exchange rate is E




2. Consider an example of rate-of-return calculation. Suppose that Foreign bank pays 10% annual interest rate in cF. Right now, the exchange rate is E = 1CH/cF. In one year, you expect the exchange will be 1.2CH/CF. You are now planning depositing 100CH into a foreign bank account using the current exchange rate, wait one year, receive the interest from the bank, withdraw all money in the account, and exchange the money into CH. 2.a. Based on your expected exchange rate, not using the simple rule, answer the exact foreign rate of return. 2.b. Using the simple rule, answer the Foreign rate of return. 3. Suppose that E = 50CH/CF, Ee = 48CH/CF, and RF = 6%. 3.a. Using the simple rule, answer the Foreign rate of return.3.b. Home interest rate is 4%. Which currencies will financial investors buy: Home currency, Foreign currency, or Neither
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