Homework Answers
Since fewer dollars will be required to buy Euro, it is expected to appreciate
Rate = (1.50-1.475)/1.50
= 1.67%
Hence, the answer is a. The dollar is expected to appreciate by 1.67%
B.Expected dollar return = (1+Return)(1-Appreciation rate) – 1
=(1+5%)(1-0.167)- 1
= 3.25%
i.e. 3.33% approx.
i.e. b
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