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The domestic risk-free rate is 3%
The domestic risk-free rate is 3%. The foreign risk-free rate is 5%. What is the risk-neutral growth rate of the exchange rate?
Select one:
a. +2%
b. -2%
c. +5%
d. +3%
Expert Solution
Computation of the risk-neutral growth rate of the exchange rate:-
Risk neutral growth rate = Domestic risk free rate - Foreign risk free rate
= 3% - 5% = -2%
So, the correct option is b). -2%
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