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% 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

By selling A$100 million for US dollars at an exchange rate of A$1.20 to US$1.00, the FI receives US$83.33 million (A$100 million / 1.20).
Investing the US dollar assets at an interest rate of 12% for one year, the value of the assets at the end of the year would be:
US$83.33 million x (1 + 0.12) = US$93.33 million.
Therefore, the correct answer is C.

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