Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected exchange rate in one year is $1.224. If the spot rate is $1.24, then the expected dollar return on euro deposits is:
a. 4%
b. 7.1%
c. 0.71%
d. 0.129%
Ans: c. 0.71%
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