### Computation of exchange rate

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##### Reference no: EM1311529

Suppose the CFO of a German corporation with surplus cash flow has 1 million Euros to invest. Suppose that interest rates on 1-year CD deposits in U.S. banks are 2%, while rates on 1 year CD deposits denominated in euros in German banks are currently 4.5%. Suppose further that the CFO expects that the (euro/\$) exchange rate will increase from 1 euro per \$ to 1.1 euros per \$ during the coming year. Should the CFO invest in CD's denominated in dollars or in euros? Show your work to substantiate your response as credible.

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