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What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%

Respuesta :

segehood

Answer:

B. 11%

Explanation:

Recall that

Dollar return on euros = Euro interest rate + [(current exchange rate per euro - initial exchange rate per euro) ÷ initial exchange rate per euro]

Given that

Euro interest rate = 0.05 or 5%

Initial exchange rate = 1.10

Current exchange rate = 1.165

Therefore

Dollar return on Euros = 0.05 + [(1.165 - 1.10) ÷ 1.10]

= 0.05 + [0.065 ÷ 1.10]

= 0.05 + 0.059

= 0.109

OR

= 10.9 %

= 11%

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