Suppose you have $1000 that serves as margin for a $9000 one year loan where the US interest rate is 3%.You invest the total = $10,000 in Europe where the exchange rate is $1.25 $/.The one year interest rate in Europe is 6%.

Consider the following two scenarios:

Scenario #1:The $/ exchange rate remains constant over the holding period = 1 year

Scenario #2:The exchange rate after one year is 1.2 $/

a) Assuming scenario #1 and that you invested the total $10,000 in Europe, what is your profit / loss and your rate of return in $ when you close your position?