A Palestinian investor obtains USDollars when the Dollar is worth ILS3.5 (Shekel) and invests in a one-yearmoney market security that provides ayield (in Dollar) of 5.8 percent. At theend of one year, the investor convertsthe proceeds from the investment (inDollars) back to Shekels at theprevailing spot rate of ILS 3.62 perdollar. One-year money marketsecurities in Shekel provide a yield of 8percent. The effective yield earned bythe investor isO A. 11.70%B. 4.42%O C. 9.43%O D. 2.29%

Spot rate$1=3.5 ShekelOne year rate$1=3.62 ShekelInterest rate=5.8%

Answered: A Palestinian investor obtains US…

A Palestinian investor obtains US Dollars when the Dollar is worth ILS 3.5 (Shekel) and invests in a one-year money market security that provides a yield (in Dollar) of 5.8 percent. At the

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

A Palestinian investor obtains US
Dollars when the Dollar is worth ILS
3.5 (Shekel) and invests in a one-year
money market security that provides a
yield (in Dollar) of 5.8 percent. At the
end of one year, the investor converts
the proceeds from the investment (in
Dollars) back to Shekels at the
prevailing spot rate of ILS 3.62 per
dollar. One-year money market
securities in Shekel provide a yield of 8
percent. The effective yield earned by
the investor is
O A. 11.70%
B. 4.42%
O C. 9.43%
O D. 2.29%

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