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US dollar vs Euro

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Congratulations, you just won the Irish Lottery! You bought a ticket while you were on vacation in Ireland, and you just won a 1 million Euro jackpot after all taxes were taken out.

If the current exchange rate is US$1 equals 1.25 Euros, how much did you win in US dollars?
Suppose that the interest rate in Irish banks is 5% for a one year CD. In the USA, the rate is 2% for a one year CD. If you left your winnings in Ireland, how many Euros would you have in a year? If you had taken your winnings back to the USA, how many dollars would you have?
Suppose when you cashed in your CD in Ireland a year from now, the exchange rate had changed from US$1 to 1.25 Euro, to US$1 to 1.30 Euro. How much would your Irish bank account be worth in US$ at that point? Did you do better off leaving your winnings in Ireland or bringing them home to the USA?

Be sure to show all calculations.

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Solution Preview

Hello!
Here are your answers.

- If the current exchange rate is US$1 equals 1.25 Euros, how much did you win in US dollars?
We have the relationship:

1 dollar = 1.25 euros

Therefore,

1 euro = 1/1.25 dollars = 0.80 dollars

So, if you won 1,000,000 euros, then that's equivalent to 1,000,000*0.80 = 800,000 dollars

- If you left your winnings in Ireland, how many Euros would you have in a year?
The rate in Irish banks is 5%. So, if you had ...

Solution Summary

US dollar vs Euro is determined.

$2.19