Question

The current exchange rate is 0.93 euros per dollar, but you believe the dollar will decline to 0.85 euros per dollar. If a euro-denominated bond is yielding 2%, what return do you expect in U.S. dollars?

Answer 1

The return you expect in U.S. dollars is 1.116%

Step-by-step explanation:

0.85 = 0.93 ( 1+0.02/1+X)

0.85/0.93 = 1.02/X

0.913978 = 1.02/X

X = 1.02/0.913978

= 1.116%

Therefore, The return you expect in U.S. dollars is 1.116%