An FI Has Purchased (Borrowed)a One-Year $10 Million Eurodollar Deposit

Multiple Choice

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent.It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$.Both interest and principal are paid at the end of the year.

At what one-year forward rate will the bank earn a 1 percent spread?

A) €1.7344/$.
B) €1.7418/$.
C) €1.7478/$.
D) €1.7750/$.