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GIVEN: 1,000,000 € (EUR, Euro) invest in US w/ current spot XR = US$ 1.18/€ and...

GIVEN: 1,000,000 € (EUR, Euro) invest in US w/ current spot XR = US$ 1.18/€ and 3-month US APR = 2%

1- What is the expected EFFECTIVE Annual Return on the US investment:

2- Convert the Euros, determine the dollar amount after the three months, and translate the dollars back into Euros at a future SPOT rate of XR = US$ 1.12/€:

3-What did the investor earn in Euros for the three month period annualized on a simple interest basis:

4-What did the investor earn in Euros for the three month period annualized on a compound interest basis:

5-Which currency appreciated?

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Expert Solution

jeff jeffy answered 3 years ago
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