Suppose that on July 1, 2016 a US pension fund invested $100 millions in 1-year Certificate of Deposits (CDs) from country B These CDs are denominated in BPounds Suppose also that these CDs offered a...

Suppose that on July 1, 2016 a US pension fund invested $100 millions in 1-year Certificate of Deposits (CDs) from country B These CDs are denominated in BPounds Suppose also that these CDs offered a nominal (in terms of B-pounds) interest rate of 5% Suppose also that the exchange rate at that time was $232 per B-pound

a) The exchange rate a year later, on July 1, 2017, was $257 per B-pound What rate of return, in terms of nominal dollars, did the fund earn on its investment? (Note: a specific numeric answer is required Please show the steps of your calculations)

b) What would have been the return on the investment if the exchange rate on July 1, 2017 had been $220 per B-pound? Which exchange rate does the US pension fund manager prefer? Explain your answer