An investor in the United States bought a one-year Brazilian security valued at

Question

An investor in the United States bought a one-year Brazilian security valued at 390,000 Brazilian reals (R$). The U.S. dollar equivalent was $340,000. The Brazilian security earned 10 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the time period ($.87 to $.82).

After transferring the funds back to the United States, what was the investor’s return on her $340,000? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Initial invested funds in USD = $340,000

The return over the year is 10% which increased the investment from R$390,000 to R$429,000

Now the amount of R$429,000 needed to be sent back to US.

Hence the US equivalent amount would be = 429,000 * 0.82 = $351,780 USD

Return on the investment would be = (351,780/340,000)-1 = 3.46%

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