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Suppose that 1-year, 2-year, and 3-year forward prices for the euro are $1.25/, $1.39/, and $1.64/, respectively. The 1-year, 2-year, and 3-year effective annual interest
Suppose that 1-year, 2-year, and 3-year forward prices for the euro are $1.25/, $1.39/, and $1.64/, respectively. The 1-year, 2-year, and 3-year effective annual interest rates in the U.S. are 5.8%, 6.0%, and 6.2%. What is the fixed exchange rate in a 3-year euro swap? (In other words, what 3-year U.S. dollar annuity is equivalent to a 3-year annuity of 1?)
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