Breakeven Point
Same problem but compute the expected xrate at which the two investments have the same expected return
- A deposit of E1 today will cost $0.90
- A year from now we’ll have E1.05
- $0.90 invested in US -> $0.99
- $0.99/E1.05 will give the breakeven exchange rate = 0.9428
- For expected exrate ɘ.9428 $ wins for expected exrate ɬ.9428 Euro wins