thanks Question 20 2 pts A U.S. based MNC with $1 Million in excess cash wishes

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Question 20 2 pts A U.S. based MNC with $1 Million in excess cash wishes to invest in Australia owing to that country's relatively high interest rates which at this time is 8% for a 1 year deposit. The exchange rate of the Australian dollar (AUD) is currently $0.68. At the end of the 1 year deposit period, the spot rate of the AUD is $0.61. Calculate the effective yield on the Australian deposit. Time Running Attempt due Mar 7 at 1 2 Minutes, 1 Secon -3.12% 0-4.08% o 3.12% 04.19% bmit Quiz

Explanation / Answer

Effective yield on australian investment = (1 + Interest on deposit) * (1 + change in spot rate) -1

The AUD has depreciated against the dollar as now it will be able to buy only 0.61 USD instead of 0.68 USD against 1 AUD * =

Depreciation = (0.61 -0.68) / 0.68 * 100 = -10.29%

Investment yield = (1 + 8%) * (1 - 10.29%) -1 = -3.12%

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