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Could you explain why the answer is the one stated below? 2. The expected spot USD/euro exchange rate that will be realized 180 days in
Could you explain why the answer is the one stated below?
2. The expected spot USD/euro exchange rate that will be realized 180 days in the future is $1.25/. The current spot exchange rate is $1.23/. Suppose the standard deviation of the rate of change of the spot exchange rate of dollars per euro is 5% over the period. Finally, you observe a 180-day forward rate of $1.24/. Using a 95% confidence interval, what is the worst spot exchange rate that can occur in 180 days for an investor that sells 1 million euros forward? (Note: Write your answer with two decimal places) 2. Worst possible exchange rate = $1.25/ + 1.96*.05*$1.23/ = $1.37/Step by Step Solution
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