U.S.investments with a 1-year maturity can be made for 6% and Swiss 1-year investments can be made for 3%.If the spot exchange rate is SFr1.6/$,which of the following 1-year forward exchange rates would convince you to invest in Switzerland?

Question

Quizplus · Accepted Answer

To invest in Switzerland, the forward rate should be such that the return from Swiss investment is higher than the U.S. investment. With a forward rate of SFr1.55/$, the Swiss franc is expected to appreciate, providing a higher return when converted back to dollars.

USInvestments with a 1-Year Maturity Can Be Made for 6