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Premium or a discount relative to the euro

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Reference no: EM131401934

1. The spot exchange rate for the Euro is €$1.10 and the six-month forward rate is €$1.06

a. Which is worth more, a U.S. dollar or a Euro?

b. Assuming absolute PPP holds, what is the cost in the United States of a bottle of water Perrier if the price in Europe is €2.10? Why might the water actually sell at a different price in the United States?

c. Is the U.S. dollar selling at a premium or a discount relative to the Euro?

d. Which currency is expected to appreciate in value?

e. Which country do you think has higher interest rates-the United States or Europe? Please explain answers.

Reference no: EM131401934

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