During January 2005, an Italian investor investing in the Italian stock market earned a return of
1.47%. During the same month, an American investor investing in the Italian stock market
earned a return of –2.358%. The U.S. dollar-Euro exchange rate at the end of January 2005 was
1.3035 $/€. What was the U.S. dollar-Euro exchange rate ($/€) at the end of December 2004?
Solution
F = S * ((1 + if) / (1 + id)) 1.3035 = S x (1+1.47%) / (1 - 2.358%) S = U.S. dollar-Euro
exchange rate ($/€) = $1.25.
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During January 2005, an Italian investor investing in the Italian st.pdf
1. During January 2005, an Italian investor investing in the Italian stock market earned a return of
1.47%. During the same month, an American investor investing in the Italian stock market
earned a return of –2.358%. The U.S. dollar-Euro exchange rate at the end of January 2005 was
1.3035 $/€. What was the U.S. dollar-Euro exchange rate ($/€) at the end of December 2004?
Solution
F = S * ((1 + if) / (1 + id)) 1.3035 = S x (1+1.47%) / (1 - 2.358%) S = U.S. dollar-Euro
exchange rate ($/€) = $1.25
