Consider the following situation: interest rate in the U.S. = 6%; interest rate in Eurozone...
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Accounting
Consider the following situation:
interest rate in the U.S. = 6%; interest rate in Eurozone = 4%;
Spot: $1.2001/; 12-month forward: $1.2467/;
John wants to borrow money in the U.S., invest it in Eurozone for one year, convert back principal + interest to USD, and repay his loan. Will John realize a gain or loss? Approximately how much?
Group of answer choices
a)Gain, 2%
b)Gain, 4%
c)Gain, 6%
d)Loss, -2%
e)Loss, -4%
f)Loss, -6%
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