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3. Suppose you have $1000 that serves as margin for a $9000 one year loan where the interest rate is 1%. You invest the total

3. Suppose you have $1000 that serves as margin for a $9000 one year loan where

the interest rate is 1%. You invest the total = $10,000 in Europe where the

exchange rate is $1.25 $/. The one year interest rate in Europe is 4%.

a. (10 points) According to UIP, what is the expected exchange rate one year

from now?

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