The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Assume a U.S. firm invests $1,500 to buy a one-year U.K. bond. What is the dollar value of the proceeds if the dollar return on the U.K. bond is 20 percent at maturity?
A)$1,800
B)$1,500
C)$1,200
D)$1,000
E)$500

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Assume a U.S. firm invests $1,500 to buy a one-year U.K. bond. What is the dollar value of the proceeds if the dollar return on the U.K. bond is 20 percent at maturity?
A)$1,800 
B)$1,500 
C)$1,200 
D)$1,000 
E)$500

Quizplus · Accepted Answer

The dollar value of the proceeds is calculated by taking the initial investment and adding the return on investment. Here, the initial investment is $1,500 and the return is 20 percent of that, which is $300 ($1,500 * 20% = $300). Adding the return to the initial investment gives $1,800 ($1,500 + $300 = $1,800).

The Figure Given Below Depicts the Foreign Exchange Market for British