Current one-year interest rates in Europe is 4 percent, while one-year interest rates in the U.S. is 2 percent. You convert $200,000 to euros and invests them in France. One year later, you convert the euros back to dollars. The current spot rate of the euro is $1.20.

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 $1.12, what is your percentage return from your investment?

c. If the spot rate of the euro in one year is $1.31, what is your percentage return from your investment?

d. What must the spot rate of the euro be in one year for your strategy to be successful?