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Current one-year interest rates in Europe are 3 pe...

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Current one-year interest rates in Europe are 3 percent, while one-year interest rates in the U.S. are 2 percent. You convert $100,000 to euros and invests them in France. One year later, you convert the euros back to dollars. The current spot rate of the euro is $1.27. a. According to the IFE, what should the spot rate of the euro in one year be? b. If the spot rate of the euro in one year is $1.20, what is your percentage return from your investment? c. If the spot rate of the euro in one year is $1.35, what is your percentage return from your investment? d. What must the spot rate of the euro be in one year for your strategy to be successful?

 

Paper#11904 | Written in 18-Jul-2015

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