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What Is the Rate of Return to an Australian Investor

question 37

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What is the rate of return to an Australian investor who purchases US dollars with A$100 000 when the exchange rate is AUD 1 = USD 0.74 then invests in a US bank at 7% p.a.interest for 12 months and converts the investment back to Australian dollars when the exchange rate is AUD 1 = USD 0.76?


Definitions:

Willingness to Pay

The maximum amount an individual is prepared to spend on a good or service, reflecting the value they derive from it.

Surplus

An excess of production or supply over demand, often leading to lower prices.

Market Economy

An economic system where supply and demand from consumers and producers determine the production of goods and services.

Free Stuff

Items or services offered without charge, usually as part of a promotional strategy or as incentives.

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