9. The interest rate for US savings equals 5%. The interest rate for European sa
ID: 1103330 • Letter: 9
Question
9. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If there are no arbitrage opportunities, we can expect that:
a. The value of F < E by 1%.
b. The value of F > E by 1%.
c. F = $1.05 (dollars per euro).
d. The value of F = E.
10. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If F = $1.03:
a. The rate of return is identical in the US and Europe.
b. You can earn a higher risk-free return by saving in the US and selling dollars at the forward rate.
c. You can earn a higher risk-free return by saving in Europe and selling euros at the forward rate.
d. You can earn a higher risk-free return by saving in Europe and buying euros at the forward rate.
11. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If F = $1.03:
a. There will be an increase in demand for euros and an increase in the European interest rate.
b. There will be an increase in demand for euros and a decrease in the European interest rate.
c. There will be a decrease in demand for euros and a decrease in the US interest rate.
d. There will be an increase in demand for dollars and a decrease in the US interest rate.
12 . If the interest rate for US savings equals 5% and the interest rate for European savings equals 7%. E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward. If there are no arbitrage opportunities, we can expect that:
a. F = $1.05 (dollars per euro).
b. The value of F < E by 2%.
c. The value of F > E by 2%.
d. The value of F = E.
Explanation / Answer
Answer:-
9. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If there are no arbitrage opportunities, we can expect that:
Correct option:- B:- . The value of F > E by 1%.
Answer:-
10. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If F = $1.03:
Correct option:- c. You can earn a higher risk-free return by saving in Europe and selling euros at the forward rate.
Answer:-
11. The interest rate for US savings equals 5%.
The interest rate for European savings equals 4%.
E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward.
If F = $1.03:
Correct Answer:- b. There will be an increase in demand for euros and a decrease in the European interest rate.
Answer:-
12 . If the interest rate for US savings equals 5% and the interest rate for European savings equals 7%. E = $1.00 (dollars per euro)
Assuming identical time periods for the interest rates and currency forward. If there are no arbitrage opportunities, we can expect that:
Correct Answer:- b. The value of F < E by 2%.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.