Bank USA recently purchased $10 million worth of euro- denominated one-year CDs that pay 10 percent...

Bank USA recently purchased $10 million worth of euro- denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.30/€1. (LG 9-5)

a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?

b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.20/€1?

c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.40/€1?

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jeff jeffy answered 1 year ago

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