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Assume that annual interest rates are 9 percent in the United States and 10 percent in Switzerland. A financial institution can borrow (by issuing CDs)
Assume that annual interest rates are 9 percent in the United States and 10 percent in Switzerland. A financial institution can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $1.67/CHF (Swiss Franc). Calculate the forward rate at which a no-arbitrage situation occurs. Explain the above result. Which currency is expected to appreciate according to the forward market?
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