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) 15%

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 are not relevant for calculating the dollar rate of return on dollar deposits.

What Is the Expected Dollar Rate of Return on Dollar