Exchange Rate Risk In the late 1990s,many East Asian currencies suddenly and dramatically devalued.What is the percentage change in value of a $10 million investment in Indonesia when the exchange rate changes from $1 = 3,000 rupiah to $1 = 10,000 rupiah?

Question

Quizplus · Accepted Answer

To calculate the percentage change in the value of the investment, we need to compare the initial value of the investment in USD with its new value in USD after the change in the exchange rate. 
Initially, $10 million = 10,000,000 USD x 3,000 rupiah/USD = 30,000,000,000 rupiah 
After the exchange rate changes, $10 million = 10,000,000 USD x 10,000 rupiah/USD = 100,000,000,000 rupiah 
The new value of the investment in rupiah is 100,000,000,000, which is 3.3 times greater than the initial value of 30,000,000,000 rupiah. 
Therefore, the percentage change in the value of the investment is: 
(100,000,000,000 – 30,000,000,000) / 30,000,000,000 x 100% = 233.33% 
So, the investment has increased by 233.33%, which is equivalent to a 70% decrease in value, as the question asks for the percentage change in value of the investment. Therefore, the best choice is C, 70 percent.

Exchange Rate Risk in the Late 1990s,many East Asian Currencies