Answer to Question #163433 in Economics for Surendra

Question

Suppose you lived in Canada and you bought a 10 years bond in Chinese yuan in 2010 at the 5% annually compound rate. In the same period  the canadian dollar/Chinese yuan exchange rate depreciated by30% please calculate your rate of return in Canadian dollar at the maturity of the bond. 

Answer 1

Your rate of return in Canadian dollar at the maturity of the bond:

$1.05^{10} ×(1 - 0.3) - 1 = 0.14$ or 14%.