Question

You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is

Answer 1

10.16%

Explanation:

The computation of the effective return for this investment is shown below:

Let us assume that we invested an amount in Australian dollars 100

The return is 8%

After one year, the amount is 108

Now the converting amount is 110.16 (108 × 102%)

Now the effective rate for this investment is

= 110.16 - 100

= 10.16%