Business Finance
How to solve this problem? Help please. Right answer included.

### Question Description

Can you help me understand this Economics question?

The expected simple return to a U.S. resident from putting funds into a Canadian dollar deposit yielding a simple annual nominal return of 32% while the U.S. dollar is expected to depreciate by a 4% simple rate over the year would be?

Answer: 37.5%

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## Final Answer

FVcanada=P +P(.32)*1

FVcanada=1.32P......(1)

FVusa=P-(.04)*P*1

FVusa= (.96)P..........(2)

Next we find how much more Fvcanada is higher than Fv usa so we subtract the two:

Fvcanada-fvusa=1.32p-.96p=.36p

next we divide this by fv usa to find by what percentage is fv canada higher:

(1.32-.96)/.96 = 37.5%

Prashant S (1995)
Rice University
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