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Consider a German firm that wishes to invest Euro funds for a period of one year.The firm has a choice of investing in a euro

Consider a German firm that wishes to invest Euro funds for a period of one year.The firm has a choice of investing in a euro bond with one year to maturity, paying an interest rate of 3.35%, and a U.S. dollar bond with one year to maturity, paying an interest rate of 2.25%.The current exchange rate is 1.12 per U.S. dollar, and the one-year forward exchange rate is 1.25 per U.S. dollar. Should the German firm invest in Euro bonds or in U.S. dollar bonds?

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