14-74 If the exchange rate had fallen from $1.60/£1 at the beginning of the year to $1.50/£1 at the end of the year when the FI needed to repatriate the principal and interest on the loan.What would the dollar loan revenues at the end of the year be as a return on the original dollar investment?
A)13%.
B)12.55%.
C)16%.
D)8.75%.
E)7.25%.

Question

Quizplus · Accepted Answer

To calculate the return on the original dollar investment, we need to convert the final pound amount back into dollars using the new exchange rate of $1.50/£1.

First, let's calculate the pound loan revenues at the end of the year:

£100,000 x 6% = £6,000

Next, let's convert the pound amount into dollars:

£6,000 x $1.50/£1 = $9,000

Finally, let's calculate the return on the original dollar investment:

($9,000 - $8,000) / $8,000 x 100% = 12.5%

Therefore, the answer is D) 8.75%.

14-74 If the Exchange Rate Had Fallen from $1