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A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year inflation rate in the U.S. is π$ = 2.5% and in the euro zone the one-year inflation rate is π€ = 5.5%. The one-year forward exchange rate is $1.20 = €1.00; what must the spot rate be to eliminate arbitrage opportunities?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92820918

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