Zanada Corporation invests 1,500,000 South African rand (ZAR) at a nominal interest rate of 10%. At the time the investment is made, the spot rate of the rand is $0.205. If the spot rate of the rand at maturity of the investment is $0.203, what is the effective yield of investing in rand?

Question

Quizplus · Accepted Answer

The effective yield accounts for both the interest earned and the change in exchange rate. The nominal interest rate is 10%, but the depreciation of the rand from $0.205 to $0.203 reduces the effective yield to approximately 8.93%.

Zanada Corporation Invests 1,500,000 South African Rand (ZAR) at a Nominal