Percentage change in Singapore dollar= ($0.40 - $0.50)/$0.50 = -20%.
Singapore investment loses 18.8 percent: [(1 + 0.015)(1 + (-0.20)] - 1 = -18.8%. 28. A Canadian investor has Canadian $100,000 to invest for one year. US Treasury bills offer a yield of 11 percent. The current exchange rate of the Canadian dollar is US$0.50. What is the yield on the investment if the exchange rate of the Canadian dollar is US$0.46 at the end of the year?
A. 10.25%
B. 12.55%
C. 15.00%
* D. 20.65%
E. 25.00%
Solution:
Convert Canadian $100,000 to US$50,000 at $0.50 rate.
Invest US$50,000 in the US at 11 percent.
($50,000 x 1.11 = $55,500)
Reconvert US dollars to Canadian dollars.
($55,500/$0.46 = Canadian $120,652)
Yield = (Canadian $120,652 – Canadian $100,000)/Canadian $100,000 = 20.65%.
