Suppose the current exchange rate is $1 buys .8474Euro, and key interest rates in the US are at 1% while they are at 3.5% in Europe.
A If my stock in the European stock market rises by 20%, what movement would need to occur to cause me to lose money on my transaction (when accounted for in dollars—the term in question is 1 year)? (6 Points)
B If the US Federal Reserve raises interest rates, how would you expect the Euro to move (appreciate or depreciate)? (4 Points)