Assume an FI Sells $100 Million for Euros on the Spot

Multiple Choice

Assume an FI sells $100 million for euros on the spot currency markets at an exchange rate of $1.20 to €1.00 and invests the euro assets at an interest rate of 11 per cent for one year. What is the weighted annual return on the FI's portfolio assuming that the $100 million are 20 per cent of the FI's total assets and that the remaining assets are invested in Australian dollar assets at an average interest rate of 8 per cent p.a. (round to two decimals) ?

A) 9.50 per cent p.a.
B) 8.60 per cent p.a.
C) 20.00 per cent p.a.
D) 10.40 per cent p.a.