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29 May, 22:16

the spot price of the euro is currently $1.30. The 1-year futures price is $1.35. Is the interest rate higher in the United States or the euro zone?

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  1. 29 May, 23:24
    0
    Answer: no. Interest rate in euro zone is lower than interest rate in the united state

    Explanation:

    when interest rate rises, foreign investors will be attracted which will increase the demand for domestic currency. an increase is demand for domestic currency will increase the exchange rate level which is an appreciation of the home currency.

    spot rate is $1.30 and future price is $1.35, the exchange rate increase which tells us that Home currency depreciated. A decrease in Interest rate increases Exchange rate level. Since exchange rate level is expected to increase we can assume that the interest rate of Euro zone is less than the interest rate of united states
  2. 29 May, 23:43
    0
    The interest rate is higher in the euro zone.

    Explanation:

    In foreign exchange, high interest rates attract foreign investors, appreciating a currency. On the other hand, low interest rates result in a depreciation of the currency.

    In this case, the euro appreciated and the dollar depreciated, that means that the interest rate of the euro zone is higher than the interest rate in the US.
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