Question: Use the data below to decide whether dollar-denominated assets would be preferred by investors to euro-denominated assets. Make your comparison explicit. The time horizon is

Use the data below to decide whether dollar-denominated assets would be preferred by investors to euro-denominated assets. Make your comparison explicit. The time horizon is one year. Assume all assets are free of default risk.

Dollar-denominated assets

i$ = .04

Euro-denominated assets

i = .06

E/$ = .95/$ (spot price of dollar)

Ee = .99/$(expected future spot price of dollar, one year from now)

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