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(2). If the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the...

(2). If the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the interest rate on Polish zloty accounts is equal to 4.5% (izł = 0.045), and the expected exchange rate between the dollar and the zloty one year from now is ee = 4 zł/$. Assume that the (uncovered) interest parity holds. How do I find the spot exchange rate, e. (Answer in zł/$ and round to the nearest tenth.)

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Answer #1

The interest rate parity equation is

Using the above equation, the spot exchange rate can be obtained.

Solving for the spot exchange rate,

Spot exchange rate = 4.1 zł/$

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