Annual interest rate and exchange rate

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Reference no: EM131446727

At the start of 2006, the annual interest rate was 5 percent in the United States and 2.8 percent in Japan. The exchange rate was 95 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 2006, in fact, he borrowed ¥2,000,000,000 for one year and invested in the United States. At the end of 2006, the exchange rate became 105 yen per dollar. How much profit did Mr. Jorus make in dollar terms?

Reference no: EM131446727

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