Does the foreign currency have to change over the investment

Reference no: EM133290613

Case: Assume that the interest rate on a one-year insured bank deposit in the United States is 3%, and the interest rate on a 1-year insured bank deposit in Albania is 8%.

Question 1: Using the simplified formula, for the actual returns of these two investments to be similar from the perspective of investors in the United States, by how much (as a percentage) does the Albanian currency have to change over the investment horizon?

Question 2: Using the full formula, for the actual returns of these two investments to be similar from the perspective of investors in the home country, by how much (as a percentage) does the foreign currency have to change over the investment horizon?

Reference no: EM133290613

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