1. Two investment firms seek a loan for future investments. One is seeking to invest in expanding its digital loans portfolio. The other is seeking to expand its traditional motor vehicle loan portfolio. They both want to expand. When the two owners go to the financial markets for a loan, which one is likely to get a lower interest rate? Explain in terms of the risk-return principle?

2. In April 2018 the exchange rate between the Euro and U.S dollar was €1:US$1.23. In April 2020 the exchange rate was €1:US$1.08.

  1. Has the U.S dollar appreciated or depreciated?
  2. Based on your readings explain the factors that could account for the change.
  3. If a bottle of French wine costs the U.S$50 in April 2018, what would you expect the cost of the same bottle in April 2020?