Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00. What is the US$ value of the investment (round to two decimals)?
A) $100 million $\times$ $1.2 = US$120 000.00 million
B) $100 million / $1.2 = US$83 333.33 million
C) $100 million / ($1.2 - US$1.0) = US$500 000.00 million
D) $100 million $\times$ ($1.2 - US$1.0) = US$20 000.00 million

Question

Quizplus · Accepted Answer

To find the US$ value of the investment, we need to divide A$100 million by the exchange rate of A$1.20 to US$1.00. So, US$ value of the investment = A$100 million / A$1.20 per US$1.00 = US$83 333 333.33 (rounded to two decimals). Therefore, the best choice is B. Option A is incorrect as it multiplies A$100 million with the exchange rate. Option C is incorrect as it has an incorrect formula to calculate the US$ value. Option D is incorrect as it only calculates the difference between the exchange rates, which is not the US$ value of the investment.

Assume an FI Sells A$100 Million for US$ on the Spot