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There are two countries X and Y. Let us take X as the domestic country. Then the exchange rate E is the price of 1
There are two countries X and Y. Let us take X as the domestic country. Then the exchange rate E is the price of 1 unit of country Ys currency denominated in Xs currency.
A. What is the risk-neutral process for E from Xs perspective?
B. What is the risk-neutral process for 1/E from Ys perspective?
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