Multuiply exchange rate x foreign interest rate?

Question

If you multiply a currency exchange rate by a foreign interest rate what kind of investment does that make?

Answer 1

That sounds like a meaningless investment you have there. A currency exchange rate is dependent on which currency you will use as the base currency. For example US$1 = PHP50 is also equivalent to $0.02 = PHP1. You have to figure out first which currency rate you will use.

When you invest in a foreign interest rate, more often than not, you will have to use that country's local currency. So you will have to first convert your local currency into your investee country's currency. Only then can you calculate you yield. You will also have to take into consideration the foreign exchange gains or losses when you invest in a foreign currency. So you should add or subtract this from the interest income you will get from your investment. Study something about interest rate parity.