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Suppose the Australian dollar is worth 1.6372. If the one year Euro bonds are yielding 9.8% and the one year Australian Treasury bonds are yielding
Suppose the Australian dollar is worth 1.6372. If the one year Euro bonds are yielding 9.8% and the one year Australian Treasury bonds are yielding 6.5%, at what end-of year exchange rate will the dollar returns on the two bonds be equal? What amount of appreciation or depreciation of the Euro does this exchange rate at the end of the year represent?
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