Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.20 to US$1.00 and invests the US dollar assets at an interest rate of 12 per cent for one year. What is the value of the US dollar assets at the end of the year (round to two decimals)?
A) US$134 400.00 million
B) US$22 400.00 million
C) US$93 333.33 million
D) US$560 000.00 million

Question

Quizplus · Accepted Answer

The amount of US dollars received from selling A$100 million at an exchange rate of A$1.20 to US$1.00 is: 
US$83.33 million (100/1.20)

If invested at an interest rate of 12% for one year, the value of the US dollar assets at the end of the year (rounded to two decimals) would be:
US$93,333,333.33 
(83.33 million * 1.12)

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