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,the expected return on ________-denominated assets in terms of ________ percent.

Question

Quizplus · Accepted Answer

The expected return on euro-denominated assets in terms of dollars is 1%. This is because the interest rate on euro-denominated assets is 7%, and the dollar is expected to appreciate at a 4% rate. Therefore, the expected return on euro-denominated assets in terms of dollars is 7% - 4% = 1%.

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