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Today, Feb 14th, 2021. I have collected the following from Bloomberg: The spot rate: USD 1.21/EUR 2-year USD YTM=0.11% 2-year EUR YTM=-0.72%. Note: YTM is

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Today, Feb 14th, 2021. I have collected the following from Bloomberg: The spot rate: USD 1.21/EUR 2-year USD YTM=0.11% 2-year EUR YTM=-0.72%. Note: YTM is always quoted per year. if we want to make this even more realistic we can include the bid-ask spreads on the bonds, and on the exchange rates. We will put this aside for now but come back to it when we work on swaps. Question 1 1 pts Solve for the no-arbitrage 2-year forward rate. please round to 2 decimal places. Question 2 1 pts Assume that the 2-year forward rate is USD 1.21/EUR. Is there an arbitrage opportunity? compute the profit if you can borrow up to USD 1,000,000 (or the equivalent in EUR), please round to the nearest US cent. Question 2 1 pts Assume that the 2-year forward rate is USD 1.21/EUR. Is there an arbitrage opportunity? compute the profit if you can borrow up to USD 1,000,000 (or the equivalent in EUR). please round to the nearest US cent. Question 3 1 pts Suppose that you invest in the strategy known as the "carry trade". What will be your profit/loss if the spot rate in 2 years is USD 1.00/EUR. Question 4 1 pts Suppose that unexpectedly the FED increases the fed funds rate by 50bp. The new YTM on the 2-year U.S. bonds jumps to +0.70%. The European Central Bank keeps the target interest rate stable. What will happen to the spot and forward exchange rates? OS unchanged, Fjumps UP OS falls, Fremains unchanged S jumps UP, F falls OS jumps UP, F jumps UP S falls, Fjumps UP S unchanged, Ffalls OS jumps UP, F remains unchanged

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