Question 33 • Mathematics for Data and Financial Literacy
An investor in the United Kingdom purchases property in Australia. The initial investment is made in Australian dollars (AUD), and the exchange rate at the time of the investment is 1 GBP = 1.75 AUD. After five years, the investor sells the property. At that time, the exchange rate has changed to 1 GBP = 1.60 AUD. The investment originally cost the investor 350,000 GBP. How much did the exchange rate fluctuation impact the return on the investment in GBP?
Answer
A
The investor lost 20 comma 312 point 5 0 GBP.
B
The investor gained 20 comma 312 point 5 0 GBP.
C
The investor gained 32 comma 812 point 5 0 GBP.
D
The investor lost 32 comma 812 point 5 0 GBP.
Explanation
The initial £350,000 investment was worth £350,000 × 1.75 = A$612,500. If the property’s value in Australian dollars is unchanged, that amount converts at the later rate to A$612,500 ÷ 1.60 = £382,812.50. Compared with the original £350,000, the exchange-rate fluctuation increases the return by £32,812.50, so the investor gained that amount.
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