QUESTION 4a

You are given the following information. There are two countries, the US and Europe. It costs two dollars to buy one Euro. The nominal interest rate for a one-year US dollar deposit is five percent. The forward rate is 2.04 dollars. What is the percentage expected change in the spot exchange rate for the US dollar against the Euro?

• 0.05
• 0.10
• 0.02
• 0.03

4b

The forward premium on the dollar is.

• 0.05
• 0.10
• 0.02
• 0.03

4c

The European nominal interest rate is.

• 0.15
• 0.01
• 0.03
• 0.02

4d

What do you expect the exchange rate to be one year from now?

• 2.00
• 1.90
• 2.10
• 2.04