A European investor can earn a 4.75% annual interest rate in Europe or 2.75% per year in the United States. If the spot exchange rate is $1.58 per euro, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?
A) $1.5484
B) $1.6108
C) $1.5335
D) $1.5498
E) $1.5977 (1.0275/1.0475) x $1.58 = $1.5498
Correct Answer:
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