1a)

		Exchange Rate								Interest Rate		APR
S0($/)		$	1.45		=		1.00			i$			4	%
F360($/)		$	1.48		=		1.00			i			3	%

If you borrowed 1,000,000 for one year, how much money would you owe at maturity in USD ? Round you answer to the nearest dollar.

$702,703

$695,946

$717,241

$710,345

1b) Assume that you are a retail customer. Use the information below to answer the following question.

		Bid		Ask			Borrowing		Lending
S0($/)		$1.40 = 1.00		$1.43 = 1.00		i$	4.20% APR		4.10% APR
F360($/)		$1.44 = 1.00		$1.49 = 1.00		i	3.65% APR		3.50% APR

In which of these cases your gain is higher in Euros? How much is the actual gain?

(i) If you had 1,000,000, traded them for USD at S₀, invested the dollars in the U.S. for one year, and exchanged your dollars for EUR at F₃₆₀.

(ii) If you had 1,000,000, invested your euros in the eurozone.

Both options yield35,000.

Option (ii) has a higher yield, gain = 35,000.

Option (i) has a higher yield, gain = 22,369.

Option (i) has a higher yield, gain = 33,771.