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QUESTION 4 $ interest rate is 5%. Euro interest rate is 10%. Spot exchange rate is 2$/euro. Forward exchange rate is F $/euro

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Answer #1

1.91

(S = 2$/euro
Rf = 5% = 0.05
Rd = 10% = 0.1

F = S(1+Rf)/(1+Rd) = 2*(1+0.05)/(1+0.1) = 2(1.05)/1.1 = 2.1/1.1 = 1.91)

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