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If the Current Spot Exchange Rate on the Euro Is

question 24

Multiple Choice

If the current spot exchange rate on the Euro is $1.2812/€ and the two year risk free rate for borrowing in dollars is 3% and 4% for borrowing in Euros,what should be the two year $/€ forward exchange rate?

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Definitions:

Exchange Rate

The price of one country's currency in terms of another currency.

Put Option

A financial contract giving the buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specific time.

Strike Price

A term synonymously used with Exercise Price, indicating the fixed price at which an option holder can buy or sell the underlying asset.

Contract Maturity

The predetermined date on which a financial contract, such as a bond or a futures contract, expires or is settled.

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