Homework Assignment – 7

It will be worth 1.3*1.02 = 1.326 USD. Thus the exchange rate in a years time must be: 1.326/1.04 =$1.275/EUR. If the dollars begins trading at $1.3 per euro, with the same interest rates given in problem 3, and the ECB raises interest rates so that the rate on euro deposits rises by 1%, what will happen to the exchange rate (assuming that the ... ................
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