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

-Suppose a U.S. citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent. If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.
A)$900
B)$1,100
C)$1,300
D)$1,500
E)$1,200

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Suppose a U.S. citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent. If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.
A)$900 
B)$1,100 
C)$1,300 
D)$1,500 
E)$1,200

Quizplus · Accepted Answer

The bond yields 10%, so the investment grows to 1,100 yen. If the dollar appreciates 20%, the yen is worth less in dollars. The original $1,000 investment would be worth $1,100 in yen, but with a 20% appreciation, it would be worth $1,100 / 1.2 = $916.67, closest to $900.

The Figure Given Below Depicts the Foreign Exchange Market for British