Question

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

		inflation rate; exchange rate movements
		income level; interest rates
		interest rates; exchange rate movements
		interest rates; amount invested

Answer 1

The correct answer is Interest rates ans Exchange rate movements

The Yield is the net Interest rate that you earns of the investment amount, The yield depends on the prevailing interest rate in the market and for the foreign currency, there is element of exchange rate movements that the investor needs to consider as it leads to fluctuation in currencies thus changing effective Yield.