Consider a U.S. investor with $100. Assume that the U.S. interest rate is 4%, the European interest rate is 5%, and the (one-year) forward exchange rate is $0.9

1. (Scenario: Forward Exchange Rate) If the spot rate is $1.1, then the dollar-denominated (riskless) return on Euro deposits using a forward cover is:

A) $85.91 B) $94.55 C) $127.11 D) $128.33

2. (Scenario: Forward Exchange Rate) If the spot rate is $1.1 and the interest rates are the numbers given above, at what forward rate will the returns between the United States and Europe be equalized?

A) $1.1106 B) $1.0895 C) $0.8914 D) $0.9087