It is now on September 25. You observe the EURUSD spot exchange rate is 1.0670 and the

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It is now on September 25. You observe the EURUSD spot exchange rate is 1.0670 and the 1-year forward exchange rate is 1.0850.

a. What is the annualized forward premium? (4 points)

b. Based on the no-arbitrage condition, what is the approximate one-year interest rate differential between the U.S. and the euro area? (3 points)

c. Which currency has a higher one-year interest rate? Why? (3 points)

d. If you observe that the one-year spot interest rate for the EUR is 3%, what is the one year spot USD interest rate? (2 points)

Related Book For answer-question

International Financial Management

ISBN: 9780077861605

7th Edition

Authors: Cheol Eun, Bruce Resnick

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Posted Date: Oct 08, 2023 04:50 AM

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It is now on September 25. You observe the EURUSD spot exchange rate is 1.0670 and the

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a To calculate the annualized forward premium you can use the formula Annualized Forward Premium For... View the full answer

International Financial Management

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