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QUESTION 2 The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035. A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What is the expected return on investing in Europe. 0.025 0.05 0.01 -0.02 QUESTION 3 The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return on investing in Australia. 0.05 0.10 0.12 0.02

QUESTION 2 The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035. A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What is the expected return on investing in Europe. 0.025 0.05 0.01 -0.02 QUESTION 3 The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return on investing in Australia. 0.05 0.10 0.12 0.02

International Financial Management
International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 49QA
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QUESTION 2 The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035. A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What is the expected return on investing in Europe. 0.025 0.05 0.01 -0.02 QUESTION 3 The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return on investing in Australia. 0.05 0.10 0.12 0.02
Transcribed Image Text:QUESTION 2 The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035. A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What is the expected return on investing in Europe. 0.025 0.05 0.01 -0.02 QUESTION 3 The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return on investing in Australia. 0.05 0.10 0.12 0.02
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