Assume an FI Sells $100 Million for Euros on the Spot

question 35

Multiple Choice

Assume an FI sells $100 million for euros on the spot currency markets at an exchange rate of $1.20 to €1.00 and invests the euro assets at an interest rate of 11% for one year.What is the weighted annual return on the FI's portfolio assuming that the $100 million are 20% of the FI's total assets and that the remaining assets are invested in Australian dollar assets at an average interest rate of 8% per annum (round to two decimals) ?

• A)9.50% p.a.
• B)8.60% p.a.
• C)20.00% p.a.
• D)10.40% p.a.

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Definitions:

Purchase and Payment

Purchase and payment refer to the process of acquiring goods or services and subsequently settling the obligation to pay for these goods or services.

Balance Sheet

A financial statement that presents a company's assets, liabilities, and shareholders' equity at a specific point in time, showing the company's financial position.

Foreign Exchange Gain

Profit derived from the appreciation of one currency against another in the context of foreign exchange trading or transactions.