Intro You have $11,000 to invest and observe the following interest rates and exchange rates:...
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Accounting
Intro
You have $11,000 to invest and observe the following interest rates and exchange rates:
| Annual interest rates | Deposit rate | Loan rate |
| Dollar | 4.8% | 5.5% |
| Ruble | 6.1% | 7% |
| Exchange rates | Bid | Ask |
| Ruble spot | $0.018 | $0.019 |
| Ruble 1-year forward | $0.02 | $0.021 |
Part 1
How many rubles will you get from converting your dollars?
Part 2
How many rubles will you have after depositing them at a Russian bank for one year?
Part 3
How many dollars will you get from selling your rubles at the one year forward rate?
Part 4
What is your risk-free rate of return (yield) from exploiting the higher interest rate in Russia?
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