Question

Suppose you open a Mexican peso bank deposit with 100 U.S. dollars when the exchange rate is 10 pesos per dollar. The peso deposit pays 20% per year interest. After one year the exchange rate equals 12 pesos per dollar. How many dollars is your peso deposit worth after one year?

Answer 1

At the end of the year the Peso Deposit is worth 100 US dollars.

Step-by-step explanation:

When we open the account 1 dollar is worth 10 pesos. So when we exchange 100 dollars into pesos to open the account we have (100*10)= 1,000 Pesos in our account. The deposit pays us 20% interest rate so at the end of the year we have (1.20*1000) =1200 Pesos at the end of the year. When the year ends 1 dollar is worth 12 Pesos, so when we convert our Pesos into dollars we will have to divide them by 12

Dollars = 1200/12= 100

SO at the year the Peso Deposit is worth 100 US Dollars.