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7. (6 Points) (a) Suppose a fund owns stocks in a foreign country. State the two sources of fluctuation in fund value. [2 points] (b)

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7. (6 Points) (a) Suppose a fund owns stocks in a foreign country. State the two sources of fluctuation in fund value. [2 points] (b) The current exchange rate is $1.5 Canadian per one Euro. The Canadian risk free rate is 5%, and the Euro risk free rate is 1% (compounded continuously). Calculate both the no arbitrage forward price and the prepaid forward price in Canadian dollars for a one year forward contract on the CAD-EUR exchange rate. [4 points] 7. (6 Points) (a) Suppose a fund owns stocks in a foreign country. State the two sources of fluctuation in fund value. [2 points] (b) The current exchange rate is $1.5 Canadian per one Euro. The Canadian risk free rate is 5%, and the Euro risk free rate is 1% (compounded continuously). Calculate both the no arbitrage forward price and the prepaid forward price in Canadian dollars for a one year forward contract on the CAD-EUR exchange rate. [4 points]

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