Question

Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?a. Spot and Channel tradeb. Price action tradec. Swap traded. Carry trade

Answer 1

D. The dollar appreciates against the Hungarian forint.

Step-by-step explanation:

If the dollar appreciates against the Hungarian forint, it implies that the american company will get lesser amount in dollars when they collect their money back as against what was anticipated when they made the investment. This is because, when the Hungarian forint depreciates against the dollar, each Hungarian forint will thus buy lesser amount of dollars than in the past or when the us company decided to invest. So the exchange rate plays a huge factor on what the us company will earn in return on investment. If the dollar were to depreciate against the Forint, the US company will earn more in that 2 months when they take it back in dollars.