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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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An analyst with a focus on currency markets is examining the exchange rate at which the US dollar (USD) can be exchanged for the euro (EUR). The analyst has the following data available:

  • Current exchange rate: 1.13 USD per EUR 1
  • Current 1-year risk-free interest rate for USD: 2.7% per annum
  • Current 1-year risk-free interest rate for EUR: 1.7% per annum

Based on this information, what is the 2-year forward exchange rate of USD per EUR 1, according to the interest rate parity theorem?

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