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Answer: b) 1.240 EUR/CHF
With the quote expressed as CHF per EUR, IRP is: \[ F = S e^{(r_{EUR}-r_{CHF})T} \] Solve for the spot rate \(S\): \[ S = F e^{-(r_{EUR}-r_{CHF})T} \] Given: - \(F = 1.300\) CHF per EUR - \(r_{EUR} = 2.00\%\) - \(r_{CHF} = 0.50\%\) - \(T = 3\) \[ S = 1.300 \times e^{-(0.02-0.005)\cdot 3} = 1.300 \times e^{-0.045} \approx 1.243 \] The closest option is **B**.
Author: Manit Arora
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Q-166.2. Assume the three-year riskfree interest rates in the Eurozone and Switzerland are 2.00% and 0.50% per annum, respectively, with continuous compounding. The three-year forward exchange rate is observed to be 1.300 CHF per EUR (i.e., 1.300 EUR/CHF). What does interest rate parity (IRP) imply for the spot exchange rate?
A
a) 1.180 EUR/CHF (1.180 CHF per EUR)
B
b) 1.240 EUR/CHF
C
c) 1.300 EUR/CHF
D
d) 1.360 EUR/CHF
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