Assume that at the beginning of each of the last seven years, you had the choice of a one-year investment in U.S. dollars or Australian dollars. Your business is in the United States, but you considered investing in Australian dollars because the Australian dollar’s annual interest rate was 9 percent versus the U.S. dollar’s annual interest rate of 6 percent. Go to www.x-rates.com and click on Historic Lookup (or search for "historical exchange rates" in your browser). Obtain the annual percentage change in the Australian dollar’s exchange rate for each of the last seven years. Determine the effective yield from investing in Australian dollars in each of the last seven years. Based on your results, was the annual effective yield higher for the Australian dollar or the U.S. dollar, on average, over the seven years? In how many of the years would you have been better off investing in Australian dollars rather than U.S dollars? Explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 21, Problem 4IEE
Textbook Problem

Assume that at the beginning of each of the last seven years, you had the choice of a one-year investment in U.S. dollars or Australian dollars. Your business is in the United States, but you considered investing in Australian dollars because the Australian dollar’s annual interest rate was 9 percent versus the U.S. dollar’s annual interest rate of 6 percent. Go to www.x-rates.com and click on Historic Lookup (or search for "historical exchange rates" in your browser). Obtain the annual percentage change in the Australian dollar’s exchange rate for each of the last seven years. Determine the effective yield from investing in Australian dollars in each of the last seven years. Based on your results, was the annual effective yield higher for the Australian dollar or the U.S. dollar, on average, over the seven years? In how many of the years would you have been better off investing in Australian dollars rather than U.S dollars? Explain.

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