Suppose you work for an investment bank in New York and on December ${28}^{th},2023,$ you had to

decide where to store $$1$ million of one customer over a year in one of these three risk$-$free alternatives:

$$-$denominated bank deposit

$-$denominated bank deposit

$-$denominated bank deposit

The spot $($E$)$ and one$-$year forward $($F$)$ market exchange rates of the $ with respect to the $,$ and

the $,$ on December $28$ th $2023$ are ${?}^1$

Exchange rates on Dec ${28}^{th},2023$

On the same day $($December $28$th $2023),$ the average interest rates of one$-$year bank deposits

denominated in the three alternative currencies were: $R_{\text{\$}}=5\mathrm{.}427\%,R_{}=3\mathrm{.}712\%$ and $R_{}=5\mathrm{.}298\%.$

i$)$ Calculate the $ return in one year with each alternative.

ii$)$ Compute the annual rates of return of each case. Show how these numbers approximately

decompose between the asset return and the foreign exchange return.

iii$)$ Which alternative would you choose? What is the $ gap between the best and the worst

alternative?