What is the expected dollar rate of return on dollar deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?
A) 10%
B) 11%
C) -1%
D) 0%
E) 5%

Question

Quizplus · Accepted Answer

The expected dollar rate of return on dollar deposits is simply the dollar interest rate, which is given as 10%. The exchange rate changes and euro interest rate do not affect the dollar rate of return on dollar deposits.

What Is the Expected Dollar Rate of Return on Dollar