If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets,and if the dollar is expected to appreciate at a 4 percent rate,for Francois the Frenchman the expected rate of return on dollar-denominated assets is

Question

Quizplus · Accepted Answer

Francois is comparing the return on two assets: 
- Euro-denominated assets with an interest rate of 7% 
- Dollar-denominated assets with an interest rate of 5% and a dollar appreciation rate of 4%.

To calculate the expected rate of return on dollar-denominated assets, we need to add the interest rate and the expected appreciation rate: 
5% + 4% = 9%.

Therefore, Francois can expect to earn a 9% return on dollar-denominated assets, which is higher than the 7% return on Euro-denominated assets.

The correct answer is B.

If the Interest Rate Is 7 Percent on Euro-Denominated Assets