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attashe74 [19]
3 years ago
11

Approximately what is the expected dollar rate of return on euro deposits if today's exchange rate is $1.18 per euro, next year'

s expected exchange rate is $1.10 per euro, and the euro interest rate is 5%?
Business
1 answer:
noname [10]3 years ago
4 0

Answer:

Dollar rate of return = 15.5%

Explanation:

<em>The expected dollar rate would be the dollar equivalent of the future value of the Euro deposit converted at the exchange rate applicable in a years tim</em>e .

The following steps would suffice

<em>Step 1: Future value of 1 Euro</em>

Future value of 1 Euro at 5% p.a = 1.05 Euro

<em>Step 2: Dollar equivalent of the Euro future value</em>

The Dollar equivalent of 1.05 Euro = 1.05× 1.10=1.155

<em>Step 3: The Dollar rate of return</em>

Dollar rate of return = Future value of deposit($)/initial deposit - 1

                                = (1.155/1) - 1 × 100

                               = 15.5%

Dollar rate of return = 15.5%

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