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Question 3 The interest rate is 4% on euro deposits and 2% on dollar deposits. If the dollar begins trading at $1.30 per curo and

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Question 3 The interest rate is 4% on euro deposits and 2% on dollar deposits. If the dollar begins trading at $1.30 per curo and the ECB raises interest rates so that the rate on curo deposits rises by 1 percentage point, what will happen to the exchange rate (assuming that the expected future exchange rate Er is 1.274 per euro)

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