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How do i solve this? Assume the uncovered interest parity (UIP) theory is true, there is no default risk on government bonds and free movement
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Assume the uncovered interest parity (UIP) theory is true, there is no default risk on government bonds and free movement of capital. The return on US oneyear government bonds is 5 percent and the euro is expected to appreciate 7 against the dollar by 2 percent. What does the UIP predict the current interest rates on euro-denominated bonds should be? Explain your answer
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