A European investor can earn a 4.75% annual interest rate in Europe or 2.75% per year in the United States. If the spot exchange rate is $1.58 per euro, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments? A. $1.6108 B. $1.5335 C. $1.5484 D. $1.5498

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
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A European investor can earn a 4.75% annual interest rate in Europe or 2.75% per year in the United States. If the spot exchange rate is $1.58 per euro, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?


A.

$1.6108

B.

$1.5335

C.

$1.5484

D.

$1.5498

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