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Suppose you observe the spot euro at $1.38/€, the U. S. risk-free interest rate of 0.25%...

Suppose you observe the spot euro at $1.38/€, the U. S. risk-free interest rate of 0.25% (continuously compounded), and the European risk-free interest rate of 0.75% (continuously compounded). Identify the theoretical value of a six month foreign exchange futures contract (select the closest answer).

                a.             $1.3815/€

                b.             $1.3765/€

                c.             $1.3785/€

                d.             $1.3825/€

                e.             $1.3755/€

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Answer #1

- Theoratical so t. 6-month - Spot Rate ( $ * It Rafecus) Forward Rate I+ Rate (e) = 1.38 x (1 +0.0025) (1+ 0.0075) + 0.0025

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