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Question 11 Consider the / spot and forward exchange rates in the table below. The risk-free one-year interest rates on the euro and the pound
Question 11 Consider the / spot and forward exchange rates in the table below. The risk-free one-year interest rates on the euro and the pound are equal to 0.25% p.a. and to 1.25% p.a., respectively. Bid Ask / Spot rate 0.8362 0.8364 / 1-year forward 0.8388 0.8391 rate Suppose an investor has access to funds denominated in euros and invests in pounds at the pound rate for one year. What is the capitalized value of 1 invested at the pound rate with a hedged strategy at the end of the year? 1.016 1.010 1.013 1.009
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