The following information applies to problems 14 through 17. Beth Miller does not believe that the IFE holds. Current one-year interest rates in Europe are 5 percent, whereas one-year interest rates in the U.S. are 3 percent. Beth converts $100,000 to euros and invests them in Germany. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.10.

14. According to the IFE, what should the spot rate of the euro in one year be?

a. -2.49%

b. -2.25%

c. -1.90%

15. If the spot rate of the euro in one year is $1.15, what is Beths percentage return from her strategy?

a. -4.55%

b. 4.55%

c. 6.77%

d. 9.77%

16. If the spot rate of the euro in one year is $1.08, what is Beths percentage return from her strategy?

a. 2.10%

b. 2.49%

c. 3.09%

d. 3.49%

17. What must the spot rate of the euro be in one year for Beths strategy to be successful? Why?

a. Lower than $1.079

b. Greater than $1.079

c. Lower than $1.039

d. Greater than $1.039