Assume That the U

question 122

Multiple Choice

Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected exchange rate in one year is $1.224. If the spot rate is $1.24, then the expected dollar return on euro deposits is:

• A) 4%.
• B) 7.1%.
• C) 0.71%.
• D) 0.129%.