Question
4. Suppose that the exchange rate for U.S. $1 for another currency is such that U.S. $1 = 3.5 ARS (Argentine pesos). Further suppose that
4. Suppose that the exchange rate for U.S. $1 for another currency is such that U.S. $1 = 3.5 ARS (Argentine pesos). Further suppose that if the exchange rate remains the same, you will receive a 25% return on your investment in ARS currency over the next years period. As an investor, you are aware of the volatility in Argentinas currency exchange so sudden movements are expected.
a. If the exchange rate were to change such that $1 = 50ARS, what return do you expect on the investment?
b. If the exchange rate were to change such that $1 = 2ARS, what return do you expect on the investment?
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