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 Exchange Rates
I have an assignment in my International Trade class. Here it is:
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.
1. If the current exchange rate is US$1 equals 1.25 Euros, how much did you win in US dollars?
2. 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?
3. 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?
Here are my calcs:
Irish Lottery Winnings: €1,000,000
US $1
Euro €1.25
Exchange Rate = $.80
US Winnings = $800,000
Irish Savings Earnings after one year =
( €1,000,000*.05)+€1,000,000=€1,050,000 Converted to US = $840,000
US CD Earnings after one year = ($800,000*.02)+$800,000=$816,000
Second Part:
US: $1 Euro: €1.30 Exchange Rage is $.77
Irish Savings Earnings after one year: €1,050,00 Equals in US $807,692.31
US Winnings: $769,230.77
US CD Earning after one year: ($769,230.77*.02)+$769,230.77=$784,615.38
Sorry so long. Does this look right? Thanks
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Originally Posted by givememyleg
