Question: Hey Chegg, I need help with this problem. The interest rates in the $ and the euro are 2% and 5% respectively. If the spot

Hey Chegg, I need help with this problem.

The interest rates in the $ and the euro are 2% and 5% respectively. If the spot exchange rate is $1/1 euro, what will the expected spot rate be, if the IFE applies? What is the meaning of IFE?

I believe this is the formula, but I could be wrong:

[(S1 - S2) / S2] x 100 = i$ - iy

S1 is the spot exchange rate at the beginning of the period

S2 is the spot exchange rate at the end of the period

i$ and iy are the respective nominal interest rates in the United States and a foreign nation

Please show your work step by step. It will really help me to figure out where I went wrong.

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