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Suppose that the USD-EUR exchange rate is such that one U.S. dollar buys 0.9 Euros. Suppose that the one-year spot rate is 1% in the U.S. and 1% in Europe, and that the two-year spot rates are 2% and 4%. The rates compounded annually. (a) What are the forward USD-EUR exchange rates for contracts that mature in one or two years? (b) Is EUR expected to strengthen or weaken against U.S. dollar, and when?

Reference no: EM132185119

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