Exhibit 21-1
to Benefit from the Low Correlation Between the Trinidad

Exhibit 21-1
To benefit from the low correlation between the Trinidad dollar and the Japanese yen (¥) , Sciorra Corporation decides to invest 50% of total funds invested in Trinidad dollars and the remainder in yen. The domestic yield on a one-year deposit is 8%. The Trinidad one-year interest rate is 10% and the Japanese one-year interest rate is 7%. Sciorra has determined the following possible percentage changes in the two individual currencies as follows:
$\begin{array} { l c c } \text { \underline{Currency }} & \text { \underline{Percentage Change }} & \text { \underline{Prabability }} \\\text { Trinidad dollar } & - 1.0 \% & 35 \% \\\text { Trinidad dollar } & 2.0 \% & 65 \% \\\text { Japanese yen } & - 2.0 \% & 45 \%\\\text { Japanese yen } & 1.0 \% & 55\%\end{array}$
-Refer to Exhibit 21-1. What is the expected effective yield of the portfolio Sciorra is contemplating (assume the two currencies move independently from one another) ?

A) 6.47%.
B) 8.84%.
C) 8.50%.
D) none of the above

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free