Question
Suppose that a US-based company plans to invest $10 million in a foreign country with a spot exchange rate of 1 USD = 1.20 CAD.
Suppose that a US-based company plans to invest $10 million in a foreign country with a spot exchange rate of 1 USD = 1.20 CAD. The company expects the exchange rate to appreciate to 1 USD = 1.25 CAD in one year. The foreign country offers an annual interest rate of 3%, while the US interest rate is 2%. Assuming that interest rate parity holds, what is the expected return on the investment in USD terms after one year?
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Survey of Accounting
Authors: Edmonds, old, Mcnair, Tsay
2nd edition
9780077392659, 978-0-07-73417, 77392655, 0-07-734177-5, 73379557, 978-0073379555
