Question: 4. (10 points) Suppose that the exchange rate between the US dollar and the Euro is Es/e = 1.3, and that you expect it to

4. (10 points) Suppose that the exchange rate between the US dollar and the Euro is Es/e = 1.3, and that you expect it to be around 1.1 in 6 months from now. Based on this information, (a) What do you expect to happen with the US dollar? will it appreciate or depreciate? (b) Are the arbitrage opportunities? Assume that the forward rate is 1.2 US dollars per euro. In case your answer is yes, what is the arbitrage strategy? 5. (10 points) Suppose that the expected rate for the US dollar-yen exchange rate is Edollar/yen = 0.024. If the interest rate in the US and in Japan is the same, what should the forward rate for the dollar-yen exchange rate be such that there are no arbitrage possibilities

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