Assume the spot rate of the euro is 116 and the one-year, Ask an Expert

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Assume the spot rate of the euro is $1.16 and the one-year interest rate for the Eurozone and the US are both initially 4.5%. Then assume that the US interest rate decreases to 4% while the Eurozone interest rate remains at 4.5%. According to the international Fisher effect (IFE),

a. What will the spot exchange rate be after one year?

b. What is the underlying factor that would cause such a change in the interest rate differential?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92750618

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