At the start of 1996, the annual interest rate was 8 percent in the United States...

Transcribed Image Text:

At the start of 1996, the annual interest rate was 8 percent in the United States and 4.8 percent in Japan. The exchange rate was 107 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 1996, in fact, he borrowed 1,000 million for one year and invested in the United States. At the end of 1996, the exchange rate became 117 yen per dollar. How much profit did Mr. Jorus make in dollar terms? Profit At the start of 1996, the annual interest rate was 8 percent in the United States and 4.8 percent in Japan. The exchange rate was 107 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 1996, in fact, he borrowed 1,000 million for one year and invested in the United States. At the end of 1996, the exchange rate became 117 yen per dollar. How much profit did Mr. Jorus make in dollar terms? Profit