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Suppose in month t the annual nominal interest rate is it = 0
Suppose in month t the annual nominal interest rate is it = 0.02 in the United States and i ∗ t = 0.05 in Germany. Suppose further that in month t a speculator invests 400 million dollars in carry trade for one month. Let Et be the nominal exchange rate in t, defined as the dollar price of one euro. Suppose that between t and t + 1 the dollar appreciates by 2.8 percent.
Did the speculator gain or lose and by how much? Express your answer in dollars.
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