Question: Suppose that the dollar is now worth 1 1372 If one year
Suppose that the dollar is now worth €1.1372. If one-year German bunds are yielding 9.8% and one-year U.S. Treasury bonds are yielding 6.5%, at what end-of-year exchange rate will the dollar returns on the two bonds be equal? What amount of euro appreciation or depreciation does this equilibrating exchange rate represent?
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