The current interest rate on one year's Indian rupee deposit is 5% and yen deposit is 12%. The current yen/rupee exchange rate is 2 and after a year, it is expected to exceed 2.4. In this case, what currency would you choose for a higher expected rate of return a year later?
Added by Gary R.
Step 1
If we invest in Indian rupee deposit, we will get a 5% return after one year. So, if we invest 1 unit of currency, we will have 1 * (1 + 0.05) = 1.05 units after one year. Show more…
Show all steps
Your feedback will help us improve your experience
Nick Johnson and 78 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
If a euro deposit in a bank in France earns interest of 4 percent a year and a yen deposit in Japan earns 0.5 percent a year, other things remaining the same and adjusted for risk, what is the exchange rate expectation of the Japanese yen?
find the amount and interest on rupees 1625 at rate 12% per annum for a time of 1 whole 1 upon 4 years the interest being compounded annually
Moses O.
Oluwadamilola A.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD