1) Suppose a bond issued by the European Central Bank and denominated in euros pays 2% per year. Today the exchange rate

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1) Suppose a bond issued by the European Central Bank anddenominated in euros pays 2% per year. Today the exchange rate is$1.32 per euro. It is expected that the exchange rate in one yearwill be $1.45 per euro. What is the annual dollar return on thisbond?
2 percent.
12 percent.
−7 percent.
15 percent
2) Suppose covered interest parity holds and the domesticinterest rate is higher than the foreign interest rate. Thenthe foreign currency must be trading at a forward
premium.
discount.