Assume That the U

question 45

Multiple Choice

Assume that the U.S. one-year interest rate is 5% and the one-year interest rate on euros is 8%. You have $100,000 to invest and you believe that the international Fisher effect (IFE) holds. The euro's spot exchange rate is $1.40. What will be the yield on your investment if you invest in euros?

• A) 8%
• B) 5%
• C) 3%
• D) 2.78%