Assume that a UK investor invests in a US CD offering a six-month interest rate of 5 per cent. Over this six-month period, the dollar depreciates by 9 per cent. The effective yield on the US CD for the UK investor is:

Question

Quizplus · Accepted Answer

The effective yield for the UK investor is calculated by considering both the interest earned and the currency depreciation. The interest rate is 5%, but the dollar depreciates by 9%, resulting in a net loss of 4%. The effective yield is calculated as (1 + 0.05) * (1 - 0.09) - 1 = -3.54%.

Assume That a UK Investor Invests in a US CD