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As of today, the following information is available: Using this information, make three independent forecasts of the

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As of today, the following information is available:

United States Israel Real rate of interest required by investors Nominal interest rate 2.0% 2.0% 3.0% $0.20/shekel $0.19

Using this information, make three independent forecasts of the 1-year future spot rate for the Israeli shekel. (Use exact, not approximation, relationships.)

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United States Israel Real rate of interest required by investors Nominal interest rate 2.0% 2.0% 3.0% $0.20/shekel $0.19/shekel 2.0% 7.0% Spot rate 1-year forward rate Call option premium at a strike price of $0.20

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a Forward rate equals an unbiased estimate of the future spot rate 019Shekel b Purchas...View the full answer


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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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