Question

D 4. A US investor can invest $100 in the US or in Japan. The US interest rate is 4.5% and the Japanese interest rate is 3.1%. The current exchange rate is $1 US buys 12.5 Yen, and the investor believes the future exchange rate will be 12.2 Yen. Then the US investment yields a future value of ___US dollars and the Japanese investment yields _ US dollars. 102.5; 105.64 102.5; 103.50 104.5; 103.50 104.5; 105.64

Answer 1

104.5; 105.64

US investment will yield a future value of =100*(1+4.5%)=104.5 US dollars
Japanese investment will yield a future value of=100*12.5*(1+3.1%)/12.2=105.6352