Question:
Assume that one year offshore USD and EURO interest rates in London are 4.6%-5.00% and 3.00%-3.4% respectively. A German investor has access to the following spot rates:
EUR/USD 1.2280-1.2295
The German investor with EUR 10,000,000 decides to take advantage of dollar interest rates. He/She converts Euros into USD and deposits it in the bank at 4.6% per annum interest. When the German investor withdraws its USD funds after one year, find out that the spot rates are as follows:
EUR/USD 1.1590-1.1595
What rate of return would the German investor earn on its EUR10,000,000 in Euro terms?