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Assume that interest rate parity exists. One year ago, the spot rate of the euro was $1.40, and the spot rate of the Japanese yen

Assume

that interest rate parity exists. One year ago, the spot

rate of the euro was $1.40, and the spot rate of the

Japanese yen was $.01. At that time, the one-year

interest rate of the euro and the Japanese yen was

3 percent, and the one-year U.S. interest rate was

7 percent. One year ago, you used the one-year forward

rate of the euro to derive a forecast of the future spot

rate of the euro and the yen one year ahead. Today the

spot rate of the euro is $1.39, while the spot rate of the

yen is $.009. Which currency did you forecast more

accurately?

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