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an investor plan to exchange $1,000 into euros now, invest the resulting euros for 12 months, and then exchange the euros into dollars at the end of the 12-month period. the spot exchange rate is 1.415 euros per $1 and the euro interest rate is 2% per year. the dollar interest rate is 1.8% per year.
compared to making a dollar investment for 12 months, at what 12-month forward exchange rate will the investor make neither a loss or a gain?
Why are you attempting a question for which. you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations.
You need to use the interest rate parity formula that is provided on the formula sheet in the exam.
I explain how to use the formula in my free lectures, so show me your calculations and I will tell you if you are correct 🙂