1. (Siegels [128] Paradox) Let St be the spot dollar price of the euro and Ft be...

1. (Siegelís [128] Paradox) Let St be the spot dollar price of the euro and Ft be the 1-period forward rate in dollars per euro. The claim is if investors are risk-neutral and the forward foreign exchange market ⇐(128) is efficient, the forward rate is the rational expectation of the future spot rate. From the US perspective we write this as Et(St+1) = Ft. The risk-neutral, rational-expectations, efficient market statement from an European perspective is (1/Ft)=Et(1/St+1) since from the euro-price of the dollar is the reciprocal of the dollareuro rate. Both statements cannot possibly be true. Why not? (Hint: Use Jensenís inequality).