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2. (Ch. 5) Forward Premium. It is now on September 25. You observe the EURUSD spot exchange rate is 1.0670 and the 1-year forward exchange

image text in transcribed 2. (Ch. 5) Forward Premium. It is now on September 25. You observe the EURUSD spot exchange rate is 1.0670 and the 1-year forward exchange rate is 1.0850 . a. What is the annualized forward premium? (4 points) b. Based on the no-arbitrage condition, what is the approximate one-year interest rate differential between the U.S. and the euro area? ( 3 points) c. Which currency has a higher one-year interest rate? Why? (3 points) d. If you observe that the one-year spot interest rate for the EUR is 3%, what is the oneyear spot USD interest rate? (2 points)

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