Computing interest rate on euro

Reference no: EM13116354

Assume that one year offshore USD and EURO interest rates in London are 4.6%-5.00% and 3.00%-3.4% respectively. A German investor has access to the following spot rates:

EUR/USD 1.2280-1.2295

The German investor with EUR 10,000,000 decides to take advantage of dollar interest rates. He/She converts Euros into USD and deposits it in the bank at 4.6% per annum interest. When the German investor withdraws its USD funds after one year, find out that the spot rates are as follows:

EUR/USD 1.1590-1.1595

What rate of return would the German investor earn on its EUR10,000,000 in Euro terms?

4.6%

3.4%

10.78%

10.96%

Reference no: EM13116354

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