Suppose that on January 1, 2018 you have $8,000 which you wish to hold in an interest-bearing deposit for one year. One of your choices is to exchange $8,000 for euros at the current exchange rate of E$/€ = 1.60 and hold the proceeds of that exchange as a euro deposit earning interest at an annual rate of R€ = 0.01 (or 1%). Then on January 1, 2019 you plan to convert that euro deposit (principal plus interest) back into dollars at an expected exchange rate of Ee$/€ = 1.64.
a) Fill in the blanks in the following statements to compute the expected dollar rate of return on the euro deposit:
i) Conversion of $8,000 into euros on January 1, 2018 yields € ____________