Purchase Solution

# Foreign Exchange Rate

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The spot exchange rate for the euro is \$1.6750/euro on Jan 1, 2003.
A U.S. investor bought euro1,000,000 on Jan 1 and sold it six months later (june 1).
A German investor bought \$1,000,000 on Jan 1 and sold it six months later (june1).

What should the \$/euro rate have been on June 1 for the UK investor to make the same profits as the US investor?

##### Solution Preview

Let the exchange rate be \$x/Euro
<br>
<br>US Investors Profit = 1,000,000 *(x-1.675)( he gets x dollars for every euro and had invested 1.675 dollars for every euro so profit for every euro = x-1.675)
<br>UK Investors Profit = 1,000,000 * ...

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• BE, Bangalore University, India
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