Final answer:
An investor should consider both interest rates and potential exchange rate movements when deciding where to deposit funds, with the dollar offering higher interest and the pound offering the potential for exchange rate profit.
Step-by-step explanation:
When advising an investor who is considering currency deposits between the dollar interest rate of 10 percent and the pound interest rate of 6 percent, it is crucial to take into account not only the interest rates but also the potential changes in exchange rates. If the investor believes the exchange rate of the pound will increase against the dollar (from $1.50 to $1.60 as expected), they could realize a profit by investing in pound deposits. For example, converting $24,000 into 16,000 pounds and then back into dollars at the new rate would yield $25,600. However, this strategy is tied to the risk that the exchange rates may not move as predicted, which could lead to losses instead of profits. If the investor prefers a guaranteed return, they might opt for investing in dollar deposits due to the higher interest rate. In situations where the exchange rates are uncertain or expected to be stable, a higher interest rate is typically the better choice. Therefore, it is important to consider both currency interest rates and potential exchange rate movements before making a decision.