Posted: March 6th, 2014
exchange rates
assume that today is January1, U.S. $1.00 = .90 euros, and the interest rate on dollar deposits is 3%. If in one year:
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a. the dollar appreciates relative to the euro by 10%, what will be the return on dollar deposits in terms of euros?
b. the dollar depreciates relative to the euro by 20%, what will be the return on dollar deposits in terms of euros?
c. the expected exchange rate is U.S. $1.00 = .95 euros, what is the expected rate of depreciation for the dollar?
d. the dollar is expected to appreciate 5% what interest rate on euro deposits is required if the concepts of interests rate parity and capital mobility are to hold
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