60-day interest rate (simple, p.a.) are 3% at home (usd) and 4% abroad (eur). The spot rate is 1.250. There are no spreads, as you probably noticed.

(a) Check that investing eur 1m, hedged, returns as much as usd 1.25m

(b) Check that if taxes are neutral, and the tax rate is 30%, also the after-tax returns are equal. (Yes, this is trivial.)

(c) How much of the income from swapped eur is legally interest income and how much is capital gain or loss?

(d) If you do not have to pay taxes on capital gains and cannot deduct capital losses, would you still be indifferent between usd deposits and swapped eur?