If the current exchange rate is Rs. 80 to a pound and investors believe that the pound is going to appreciate by the end of the month and will be worth Rs.85, investors think if they gave the dealer Rs. 80,000 and bought 1000 pounds, at the end of the month, they would be able to exchange the pounds for Rs. 85,000, thus making a profit of .......
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 5,000
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Current exchange rate = ₹80 per pound
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Expected future exchange rate = ₹85 per pound
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Amount invested = ₹80,000
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Pounds bought = ₹80,000 ÷ 80 = 1,000 pounds
If the pound appreciates to ₹85: 1,000 pounds×85 = ₹85,000
Profit = ₹85,000 − ₹80,000 = ₹5,000