1. The spot exchange rate for the Euro is €$1.10 and the six-month forward rate is €$1.06
a. Which is worth more, a U.S. dollar or a Euro?
b. Assuming absolute PPP holds, what is the cost in the United States of a bottle of water Perrier if the price in Europe is €2.10? Why might the water actually sell at a different price in the United States?
c. Is the U.S. dollar selling at a premium or a discount relative to the Euro?
d. Which currency is expected to appreciate in value?
e. Which country do you think has higher interest rates-the United States or Europe? Please explain answers.