Consider a German firm dial wishes to invest euro funds for a period of one year. The

Question:

Consider a German firm dial wishes to invest euro funds for a period of one year. The firm has a choice of investing in a euro bond with one year to maturity, paying an interest rate of 3.35 percent, and a U.S. dollar bond with one year to maturity, paying an interest rate of 2.25 percent. The current is €1.12 per U.S. dollar, and the one-year forward is €1.25 per U.S dollar. Should the German firm invest in euro bonds or in U.S. dollar bonds?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...