Assume That You Are a Retail Customer (I If You Borrowed €1,000,000 for One Year,how Much Money Would

question 49

Essay

Assume that you are a retail customer (i.e.,you buy at the ask and sell at the bid).Use the information below to answer the following question.
$\begin{array}{rccccc} &{\text { Bid}} & \text { ASK} & \text { APR } \\ S_{0}(\$ / €) & \$ 1.42= €1.00 & \$1.45= €1.00 &i \$ 4\% \\F_{360}(\$ / €) & \$ 1.48= € 1.00& \$1.50= €1.00 & i €3\%\end{array}$

If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

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Definitions:

Spot Trade

A financial transaction for the immediate exchange of a commodity or currency at the current market price.

Absolute Purchasing Power Parity

Absolute Purchasing Power Parity is an economic theory that compares different countries' currencies through a "basket of goods" approach, suggesting that exchange rates should adjust to equalize the price of identical goods in different countries.

Exchange Rate

How one currency's value is represented using another currency's value.

Indian Rupees

The official currency of India, abbreviated as INR, used as a medium of exchange within the country.