Assuming the international fisher effect holds

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Reference no: EM132001700

A U.S fnominal annual rate of interest is 3% and the European annual nominal rate of interest on the Euro is 2%. At the same time, the spot exchange rate is 1.20$ per Euro and the real interest is 2% in both the U.S and europe.

A. What is the one yer forecast of the U.S dollar(USD) per Euro spot exchange rate, assuming the international Fisher effect holds?

B. What is the U.S dollar(USD) per Euro on-year forward exchange rate, based on interest rate parity?

C. Can the forward exchange rate be considered a possible predictor of the future spot exchange rate, and if so,why?

Reference no: EM132001700

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