Consider a U.S. investor with a one-year investment horizon who can either deposit money in a U.S. bank for investment or deposit money in a bank in a foreign country. To determine the proper choice, the investor must know ________.

Question

Quizplus · Accepted Answer

The investor must know all of these factors to make the proper choice. Knowledge of taxes paid in both countries on investment income would help determine the after-tax return on investment in each country. The spot exchange rate between U.S. dollars and the foreign country's currency would determine the initial investment value and potential gains or losses due to currency fluctuations. The spot exchange rate one year from now between U.S. dollars and the foreign currency would determine the value of the investment in the foreign country when the investor returns. Hence, all of these factors must be considered to make an informed investment decision.