Susan lives in the US and has $1000 to invest. Shehas to decide between buying a one year CD(certificate of deposit) from a bank in the US orone in France. The US CD, denominated in dollars,pays an interest rate of 3%, while French CD,denominated in Euro, pays an interest rate of 2%.The dollar-euro spot rate is 1.4 and the dollar-euro forward rate is 1.5. What should Susan do?

Here, we calculate the given as follow;

as to decide between buying a one year CD ertificate of deposit) from a bank in the US or ne in France. The US CD, denominated in dollars, ays an interest rate of 3%, while French CD, enominated in Euro, pays an interest rate of 2%.

as to decide between buying a one year CD ertificate of deposit) from a bank in the US or ne in France. The US CD, denominated in dollars, ays an interest rate of 3%, while French CD, enominated in Euro, pays an interest rate of 2%.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Susan lives in the US and has $1000 to invest. She
has to decide between buying a one year CD
(certificate of deposit) from a bank in the US or
one in France. The US CD, denominated in dollars,
pays an interest rate of 3%, while French CD,
denominated in Euro, pays an interest rate of 2%.
The dollar-euro spot rate is 1.4 and the dollar-
euro forward rate is 1.5. What should Susan do?

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