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7. Annualized interest rates in the U.S. and France on January 1, 1991 are 9% and 13%, respectively. The spot value of the franc is

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7. Annualized interest rates in the U.S. and France on January 1, 1991 are 9% and 13%, respectively. The spot value of the franc is $0.1109 (a) What is the expected exchange rate in one year under no arbitrage? (b) Does approximate UIP predict Verify that answer depreciation of the U.S. dollar? appreciation a) is qualitatively correct an or (c) What is the one-year forward rate under no arbitrage? (d) Verify that UFR holds. (e) Assume the inflation rate is 2% in the United States. What is the inflation rate in France under no arbitrage? (f) Does approximate PPP predict Verify that answer appreciation or depreciation of the U.S. dollar? an f) is consistent with answer e). b) and

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