Answer: 3.72%.

## Explanation **Step 1: Calculate the interest rate differential** - Borrowing cost (SEK): 3.75% - Investment return (SGD): 6.50% - Interest rate differential: 6.50% - 3.75% = 2.75% **Step 2: Calculate the currency depreciation** - Initial exchange rate: 7.4162 SEK/SGD - Final exchange rate: 7.7663 SEK/SGD - SGD depreciated against SEK (it takes more SEK to buy 1 SGD) - Currency loss: (7.7663 - 7.4162) / 7.4162 = 0.3501 / 7.4162 = 4.72% **Step 3: Calculate net profit** - Net profit = Interest rate differential - Currency depreciation - Net profit = 2.75% - 4.72% = -1.97% Wait, this gives a negative result. Let me recalculate properly: **Correct Calculation:** 1. **Investment return in SGD terms:** 6.50% 2. **Currency movement impact:** - SGD depreciated by (7.7663 - 7.4162)/7.4162 = 4.72% - This means when converting back to SEK, the investment loses 4.72% 3. **Total return in SEK terms:** (1 + 6.50%) × (1 - 4.72%) - 1 = 1.065 × 0.9528 - 1 = 1.0147 - 1 = 1.47% 4. **Borrowing cost:** 3.75% 5. **Net profit:** 1.47% - 3.75% = -2.28% This still gives a negative result. Let me check the exchange rate interpretation: SEK/SGD = 7.4162 means 7.4162 SEK per 1 SGD If SEK/SGD increases to 7.7663, this means SGD depreciated (it takes more SEK to buy 1 SGD) Actually, let's calculate the profit step by step: Assume borrowing 1,000,000 SEK Convert to SGD: 1,000,000 / 7.4162 = 134,840.32 SGD Invest at 6.50%: 134,840.32 × 1.065 = 143,604.94 SGD Convert back to SEK: 143,604.94 × 7.7663 = 1,115,300 SEK Borrowing cost: 1,000,000 × 1.0375 = 1,037,500 SEK Net profit: 1,115,300 - 1,037,500 = 77,800 SEK Net profit percentage: 77,800 / 1,000,000 = 7.78% Therefore, the correct answer is **7.78%** (Option B).

Author: LeetQuiz Editorial Team