
Explanation:
The value of an investment in foreign bonds denominated in Swiss francs is directly influenced by the exchange rate between the Swiss franc and the US dollar. When the demand for Swiss francs increases, it leads to an appreciation of the Swiss franc against the US dollar. This appreciation means that each Swiss franc is worth more in terms of US dollars. Therefore, the value of the investment, when converted back to US dollars, increases. This is because the same amount of Swiss francs now translates into a larger amount of US dollars. Hence, an increase in the demand for Swiss francs leads to an increase in the value of the company's investment.
Choice A is incorrect. An increase in the supply of Swiss francs would typically lead to a depreciation of the Swiss franc relative to other currencies, assuming demand remains constant. This depreciation would decrease the value of an investment denominated in Swiss francs when converted back into US dollars.
Choice C is incorrect. A decrease in the supply of US dollars could potentially lead to an appreciation of the dollar relative to other currencies, assuming demand remains constant. This appreciation would decrease the value of an investment denominated in Swiss francs when converted back into US dollars.
Choice D is incorrect. An increase in demand for Swiss francs would typically lead to an appreciation of the Swiss franc relative to other currencies, assuming supply remains constant. This appreciation would increase, not decrease, the value of an investment denominated in Swiss francs when converted back into US dollars.
Q.887 Sandy Lee is a junior economist at a mid-sized asset management company based in Boston. The company is considering making an investment in foreign bonds denominated in Swiss francs. For this type of investment, it is vital to estimate the impact of the exchange rate on the investment value. Which of the following is accurate?
A
If the supply for Swiss francs increases, the value of the investment of the company will increase.
B
If the demand for Swiss francs increases, the value of the investment of the company will increase.
C
If the supply of the US dollar decreases, the value of the investment of the company will increase.
D
If the demand for Swiss francs increases, the value of the investment of the company will decrease.
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