Depreciation of the dollar relative to the euro

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Reference no: EM131509275

Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10% interest annually. The current spot rate of U.S. dollars for euros is $1.30/€1.

A. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro?

B. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.20/€1?

C. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.40/€1?

Reference no: EM131509275

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