Assume the following exchange rates are \"market\" rates today: 1 Euro = 1.50 US

Question

Assume the following exchange
rates are "market" rates today:

1 Euro = 1.50 US dollars OR
1 US dollar = .6667 Euros

You are planning to exchange
$2,000 US dollars for Euros.

Which of the following bank
deals will give you the most Euros?


1. 1 US dollar = .6667 Euros;
Exchange fee = 3%

2. 1 US dollar = .625 Euros;
Exchange fee = 2%

3. 1 US dollar = .6451 Euros;
Exchange fee = 1%

4. 1 US dollar = .7142 Euros;
Exchange fee = 3%

5. 1 US dollar = .6896 Euros;
No exchange fee


and



In the event that an individual
believes that interest rates are
likely to move DOWN in the next year
or two, what actions should he/she
take?


a. Invest long (such as long term CDs);
borrow long term at fixed rates

b. Invest long (such as long term CDs);
borrow short term at variable rates

c. Invest short (such as short term CDs);
borrow short term at variable rates

d. Invest short (such as short term CDs);
borrow long term at fixed rates

Explanation / Answer

4. 1 US dollar = .7142 Euros; Exchange fee = 3% Invest short (such as short term CDs); borrow long term at fixed rates

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