The following exchange rates and interest rates are quoted in the markets today:

Spot exchange rate US$$1\mathrm{.}10=1$

$1-$year forward exchange rate US$$1\mathrm{.}06=1$

Interest rates $(1-$ year fixed$)$: US$: $3\%$ per annum

$$: $5\%$ per annum

Required:

Terri Jones is an Irish$-$resident investor who has $200,000$ cash to place on deposit for

one year. At the end of the year she plans to spend her money on personal expenses in

Ireland. Recommend $($with appropriate supporting calculations$)$ whether Terri should:

$$ Place the cash on deposit in Euro for one year, or

$$ Place the cash on deposit in an American bank as US dollars for one year, and use a

forward contract to hedge the exchange risk of the conversion of the US dollar proceeds

back to Euro at the end of the year.