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It is now on September 25. The EURUSD spot exchange rate is 1.0670, and the 1-year forward exchange rate is 1.0850. a. What is the

It is now on September 25. The EURUSD spot exchange rate is 1.0670, and the 1-year forward exchange rate is 1.0850.

a. What is the annualized forward premium?

b. Based on the no-arbitrage condition, what is the approximate one-year interest rate differential between the U.S. and the euro area?

c. Which currency has a higher one-year interest rate? Why?

d. If you observe that the one-year spot interest rate for the EUR is 3%, what is the one-year spot USD interest rate?

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