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X 0 USD/EUR = 1.05; r USD = 2%; r EUR = 7%; E (X 1 USD/EUR ) = 1.16; Which of the following two
X0USD/EUR = 1.05; rUSD = 2%; rEUR = 7%; E (X1USD/EUR) = 1.16; Which of the following two statements is correct?
S1: A carry-trader would start by borrowing in USD.
S2: Based on this information the UIRP condition holds and the carry-trader should not expect to make a profit.
Both statements are correct
S1 is correct and S2 is false
Both statements are false
S2 is correct and S1 is false
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