US dollar vs Euro Economics Monetary Theory/Policy

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Subjects -> Economics -> Monetary Theory/Policy -> Posting #66506

Economics, Monetary Theory/Policy

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US dollar vs Euro

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.

By OTA: Martín Barugel, MSc (IP)

OTA Rating: 5/5

Your Price: $2.19 (original value ~$3.99)

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