The effective yield of investing in a foreign currency depends on both the ____ and the ____ of the foreign currency.

Question

Quizplus · Accepted Answer

The effective yield of investing in a foreign currency depends on both the interest rates (as they affect the return on the investment) and the exchange rate movements (as they affect the value of the foreign currency when exchanged back into the investor's home currency). Income level and amount invested are not necessarily relevant factors in determining the effective yield of a foreign currency investment. Inflation rate may also impact the value of the foreign currency, but it is not as directly related as interest rates and exchange rate movements.

The Effective Yield of Investing in a Foreign Currency Depends