# IFE Beth Miller does not believe that the IFE holds. Current one-year interest rates in Europe are 5 percent, whereas one-year interest rates in the United States are 3 percent. Beth converts \$100,000 to euros and invests them in Germany. One year later, she converts the euros back to dollars. The current spot rate of the euro is \$1.10. According to the IFE, what should the spot rate of the euro in one year be? If the spot rate of the euro in one year is \$1.00, what is Beth’s percentage return from her strategy? If the spot rate of the euro in one year is \$1.08, what is Beth’s percentage return from her strategy? What must the spot rate of the euro be in one year for Beth’s strategy to be successful?

FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698
FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698

#### Solutions

Chapter 8, Problem 24QA
Textbook Problem

## IFE Beth Miller does not believe that the IFE holds. Current one-year interest rates in Europe are 5 percent, whereas one-year interest rates in the United States are 3 percent. Beth converts \$100,000 to euros and invests them in Germany. One year later, she converts the euros back to dollars. The current spot rate of the euro is \$1.10. According to the IFE, what should the spot rate of the euro in one year be? If the spot rate of the euro in one year is \$1.00, what is Beth’s percentage return from her strategy? If the spot rate of the euro in one year is \$1.08, what is Beth’s percentage return from her strategy? What must the spot rate of the euro be in one year for Beth’s strategy to be successful?

This textbook solution is under construction.

## Expert Solution

### Want to see the full answer?

Check out a sample textbook solution.

### Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.