One - year interest rates are currently 3.30% in the United States and 2.60% in

Question

One-year interest rates are currently 3.30% in the United States and 2.60% in "Euroland." The current spot rate between the euro and dollar is $1.3225/euro. What is the expected spot rate in one year if the international Fisher effect holds? A) $1.3315/euro B) $1.3135/euro C) $1.3225/euro D) None of the above Answer: A
Show me the formula and and how you got to the answer A

One-year interest rates are currently 3.30% in the United States and 2.60% in "Euroland." The current spot rate between the euro and dollar is $1.3225/euro. What is the expected spot rate in one year if the international Fisher effect holds? A) $1.3315/euro B) $1.3135/euro C) $1.3225/euro D) None of the above Answer: A
Show me the formula and and how you got to the answer A

Explanation / Answer

According to the given problem, Interest rate in U.S = 3.30% Interest rate in Euroland = 2.60% Current spot rate between euro and the dollar = $1.3225/euro According to the international ficher effect, Expected spot rate in one year = $1.3225 x (1.026/1.033) = $1.3225 x 1(App) = $1.3225/euro Therefore, the correct option is "c"

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