Open recovereu wo F14 fx G H B c E D 4 5 6 7 B 9 Interest rate on dollar deposits Interest rate on euro deposits Este Expected rate of depreciation of the dollar Dollar rate of retum on dollar deposits Expected dollar rate of return on euro deposits 10 11 12 13 + 14 15 Interest rate on Interest rate on dollar deposit euro deposit 0.01 0.03 0.01 0.03 0.01 0.03 0.01 0.03 Expected future exchange rate (in one year) 1.225 1.225 1.225 1.225 16 17 18 19 20 21 22 24 23 Assume that spot exchange rate is Edollar/euro=1.16. Calculate and state values of domestic return and foreign return. Is this an equilibrium point for the FX market? Explain why. 2s Assume that spot exchange rate is Edollar/euro-1.25. Calculate and state values of domestic return and foreign return Is this an equilibrium point for the FX market? Explain why. 26 27 28 Open recovereu wo F14 fx G H B c E D 4 5 6 7 B 9 Interest rate on dollar deposits Interest rate on euro deposits Este Expected rate of depreciation of the dollar Dollar rate of retum on dollar deposits Expected dollar rate of return on euro deposits 10 11 12 13 + 14 15 Interest rate on Interest rate on dollar deposit euro deposit 0.01 0.03 0.01 0.03 0.01 0.03 0.01 0.03 Expected future exchange rate (in one year) 1.225 1.225 1.225 1.225 16 17 18 19 20 21 22 24 23 Assume that spot exchange rate is Edollar/euro=1.16. Calculate and state values of domestic return and foreign return. Is this an equilibrium point for the FX market? Explain why. 2s Assume that spot exchange rate is Edollar/euro-1.25. Calculate and state values of domestic return and foreign return Is this an equilibrium point for the FX market? Explain why. 26 27 28