Explanation:
Since EUR is the base currency and USD is the quote currency, $1.1111 means €1 = $1.1111.
$500,000 to euros at the spot rate: €500,000 / 1.1111 = €450,004.50$550,805.51$550,805.51 - $500,000) / $500,000 = 10.16%The answer is d) 10.16%.
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Q-501.1. The current EURUSD spot exchange rate is $1.1111, and the one-year forward exchange rate is $1.2240; i.e., EUR is the base rate, and USD is the quote rate. If you convert $500,000 U.S. dollars to euros in the spot foreign exchange market and purchase a one-year forward contract to convert euros into dollars, which is nearest to the effective annual return?
A
-1.50%
B
2.08%
C
5.79%
D
10.16%
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