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3A. You have done some research and the results are: Bank XYZ is offering a 5% rate of return on euro deposits. The current exchange
3A. You have done some research and the results are: Bank XYZ is offering a 5% rate of return on euro deposits. The current exchange rate is $1.50/, and the one-year-ahead forward rate is $1.475/. Which of the following statements is true? a. The dollar is expected to appreciate by 1.67% b. The dollar is expected to appreciate by 2.00% c. The dollar is expected to depreciate by 1.67% d. The dollar is expected to depreciate by 2.00% 3B. Using the same date from problem 3A, what is the expected dollar rate of return on euro deposits? a. 6.67% b. 3.33% c. 7.00% d. 3.00%
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