[EC290] - Final Exam Guide - Ultimate 188 pages long Study Guide!

• School: WLU
• Department: Economics
• Course: EC290
• Professor: David Johnson

Document Summary

Solution to question 1 of chapter 6 practice questions: an american investor is currently holding ,000 in his savings account in the u. s. that earns 4. 5% annual return. He has been offered an alternative investment in germany that could earn 6. 5% in one year in euro, . The investor is seeking your advice as to which investment opportunity to go for. The spot rate today is 1. 02 $/ , and the expected exchange rate is anticipated to be 0. 99. 1st alternative: investment is made in the u. s. The total value of the investment in u. s. $ after one year is calculated as follows: Fv = 1,000 (1 + 0. 045) = ,045. The total value of the investment in u. s. $ after one year is calculated as follows which involves 3 separate steps: Step1: finding how much ,000 is worth in today based on the spot rate, et = 1. 02 $/ : 1 x = 1000 1 : 1. 02 = 980. 39.