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Assume the following information is available for the U.S. and Europe: U.S. Europe Nominal interest rate U.S. 3% Europe 5% Expected inflation U.S. 1.5% Europe

Assume the following information is available for the U.S. and Europe: U.S.

Europe

Nominal interest rate

U.S. 3%

Europe 5%

Expected inflation

U.S. 1.5%

Europe 3%

Spot rate

-----

Europe $1.1315

One-year forward rate

-----

Europe $1.1022

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