15. IFE. Beth Miller does not believe that the international Fisher effect (IFE) holds. Current one-year

interest rates in Europe are 5 percent, while one-year interest rates in the U.S. are 3 percent. Beth

converts $100,000 to euros and invests them in Germany. One year later, she converts the euros back

to dollars. The current spot rate of the euro is $1.10.

a. According to the IFE, what should the spot rate of the euro in one year be?

b. If the spot rate of the euro in one year is $1.00, what is Beths percentage return from her

strategy?

c. If the spot rate of the euro in one year is $1.08, what is Beths percentage return from her strategy?