Question2 (10 ) Suppose you have $10, 000 to invest. For each of the following scenarios explain whether you would be better off putting your money in the US or foreign alternative presented. (Assume that the level of risk is same for the two alternatives in each case.)

Part (a) (5 ) You know you will need your money in 2 years. The annual interest rate on banking deposit in the US is 4% while banking deposit in Peru carry an interest rate of 10%. The current exchange rate is 3.52 New Sol per dollar. You expect that in two years the exchange rate will be 4.78 New Sol per dollar.

Part (b) (5 ) You only want to invest for 5 months. The annual interest rate (for a whole year) on bank deposits on Euros is 6.5% while that on dollar deposits is 5.5%. The current exchange rate is 0.90 Euros per dollar. You expect the exchange rate to be 0.98 Euros per dollar five months from now.