Homework Assignment – 7

The 1 EUR grows at 5% and then can be converted into USD at $1.275/EUR (from the previous problem). This is worth 1.05*1.275 = 1.33875. Alternatively you can convert your EUR to dollars at the unknown exchange rate, invest for a year at 2% and it must equal $1.33875. Thus the exchange rate must be 1.33875/1.02 = $1.3125/EUR. ................
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