Using the UIP equation to determine the spot exchange rate, assume that the expected spot rate (after one year) for euros (in terms of dollars) = $1.50, the current interest rate on euro deposits is 4.5%, and the current interest rate on dollar deposits is 5.5%. Which of the following current spot rates would satisfy the equation?
a. $1.65
b. $1.50
c. $1.485
d. $1.25
Ans: c. $1.485
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