Suppose you are a US investor and notice you can borrow at a low rate of 1% in Japan. The exchange rate S is defined such that $1 converts to ¥ S hence a higher S means a stronger USD/weaker ¥. Suppose you borrow ¥10,000 (ten thousand) initially when the exchange rate is S0 =200, convert it to USD and invest the money in the US earning a higher return R=4%. Affter one year, the yen has appreciated and the exchange rate is now S1=100. How much money did you lose overall in USD? [Answer an integer, without $ sign and without minus sign, e.g. answer 12 if your final wealth is $-12]
Suppose you are a US investor and notice you can borrow at a low rate of 1% in Japan. The exchange rate S is defined such that $1 converts to ¥ S hence a higher S means a stronger USD/weaker ¥. Suppose you borrow ¥10,000 (ten thousand) initially when the exchange rate is S0 =200, convert it to USD and invest the money in the US earning a higher return R=4%. Affter one year, the yen has appreciated and the exchange rate is now S1=100. How much money did you lose overall in USD? [Answer an integer, without $ sign and without minus sign, e.g. answer 12 if your final wealth is $-12]
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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Question
Suppose you are a US investor and notice you can borrow at a low rate of 1% in Japan.
The exchange rate S is defined such that $1 converts to ¥ S hence a higher S means a stronger USD/weaker ¥.
Suppose you borrow ¥10,000 (ten thousand) initially when the exchange rate is S0 =200, convert it to USD and invest the money in the US earning a higher return R=4%.
Affter one year, the yen has appreciated and the exchange rate is now S1=100. How much money did you lose overall in USD? [Answer an integer, without $ sign and without minus sign, e.g. answer 12 if your final wealth is $-12]
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