Henry borrows ¥100,000 at an interest rate i¥=1.5%; converts it into Australian dollars(AU$) at the current...

Henry borrows ¥100,000 at an interest rate i¥=1.5%; converts it into Australian dollars(AU$) at the current spot rate S(¥/AU$)=80; deposits the funds in a Australian savings account for a year at interest rate iAU$=7.5%. At the end of year, Henry converts his revenue in back into funding currency at the spot rate S1(¥/AU$). If the spot rate is S1(¥/AU$)=75, Henry’s net profit/loss is

a. - ¥13166.67

b. - ¥718.75

c. ¥13166.67

d. ¥718.75

e. ¥781.25

Expert Solution

Particulars	Amount
Loan taken in Yen	100,000
× interest rate	2%
Interest on loan	1,500
Add: loan	100,000
Total repayment required	101,500

Loan taken in Yen	100,000
× spot rate	0.01250
Amount invested in canada	1,250
× rate of return in AUS	7.5%
Amount of return	93.75
Add: investment	1,250
Total value in AUS $	1,343.75
× then spot rate	75
Amount in yen	100,781
Less: loan repayment	101,500
Return in one year	(718.75)

Answer is:

b. - ¥718.75

please rate.

jeff jeffy answered 3 years ago

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