The following table reports the nominal exchange rate of the US dollar against two other American currencies (Canadian dollar and Mexican pesos) on 31/12/2021. It also presents the inflation rates' forecasts for the next 1-year period (estimated by the OECD), as well as the 1- year government bond yield (in %) for both countries. Exchange rate USA Canadian dollar (CAD) Mexican peso (MXN) 1.27 20.46 Inflation rates' forecasts (%) 4.78 3.25 4.43 1-year government bond yield (%) 0.38 0.76 6.92 Mr. Garamond, the owner of a small publishing house in Bologna, plans to invest 2.5 million euros for one year, and he thinks to buy either a US bond with interest rate 0.38% or an Italian bond with interest rate -0.49%. Note also that today's euro nominal exchange rate per $ equals 0.876. If Mr. Garamond expects annual appreciation of the euro by 3.5%, what will be his choice?
The following table reports the nominal exchange rate of the US dollar against two other American currencies (Canadian dollar and Mexican pesos) on 31/12/2021. It also presents the inflation rates' forecasts for the next 1-year period (estimated by the OECD), as well as the 1- year government bond yield (in %) for both countries. Exchange rate USA Canadian dollar (CAD) Mexican peso (MXN) 1.27 20.46 Inflation rates' forecasts (%) 4.78 3.25 4.43 1-year government bond yield (%) 0.38 0.76 6.92 Mr. Garamond, the owner of a small publishing house in Bologna, plans to invest 2.5 million euros for one year, and he thinks to buy either a US bond with interest rate 0.38% or an Italian bond with interest rate -0.49%. Note also that today's euro nominal exchange rate per $ equals 0.876. If Mr. Garamond expects annual appreciation of the euro by 3.5%, what will be his choice?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The following table reports the nominal exchange rate of the US dollar against two other
American currencies (Canadian dollar and Mexican pesos) on 31/12/2021. It also presents the
inflation rates' forecasts for the next 1-year period (estimated by the OECD), as well as the 1-
year government bond yield (in %) for both countries.
Inflation rates
forecasts (%)
Exchange rate
1-year government
bond yield (%)
USA
4.78
0.38
Canadian dollar (CAD)
1.27
3.25
0.76
Mexican peso (MXN)
20.46
4.43
6.92
Mr. Garamond, the owner of a small publishing house in Bologna, plans to invest 2.5
million euros for one year, and he thinks to buy either a US bond with interest rate 0.38% or
an Italian bond with interest rate -0.49%. Note also that today's euro nominal exchange rate
per $ equals 0.876.
If Mr. Garamond expects annual appreciation of the euro by 3.5%, what will be his choice?
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