Question

Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 370,000 reals in Brazil worth 300,000 dollars. It drew 11 percent interest, but the Brazilian real declined 21 percent against the dollar.

a. What is the value of its holdings, based on U.S. dollars, at year-end?
b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 8 percent interest and the real went up by 12 percent against the dollar?

Answer 1

a. $290,400

b. $604,800

Step-by-step explanation:

a. Computation of value of holding based on U.S. dollars is shown below:-

After interest value of Brazil Real = $300,000 + ($300,000 × 0.21)

= $363,000

Now, We will calculate the Value of holdings (Brazil Real) in US dollars after 20% depreciation

Since Brazilian Real's value has depreciated by 20 per cent, the value of the holdings is based on the remaining 80% (100% - 20%)

Value of holding (Brazil real) in US dollars = $363,000 × 80 ÷ 100

= $290,400

b. Computation of the value of holding based on US Dollars is given below:-

After interest value of Brazil Real = $300,000 + ($300,000 × 0.8)

= $540,000

And, after 12 per cent depreciation, we must determine the value of holdings (Brazil Real) in US dollars.

Since, Brazilian Real's value has risen by 12 per cent, the value of the holdings is based on the = 100% + 12%

= 112%

Value of holding (Brazil real) in US dollars = $540,000 × 112 ÷ 100

= $604,800