Suppose the U. S. yield curve is flat at 4% and the euro yield curve is flat at 3%. The current exchange rate is $1.50 per euro. What will be the swap rate on an agreement to exchange currency over a 3-year period

$4.24287 million per year

Explanation:

Missing question:  The swap will call for the exchange of 1 million euros for a given number of dollars in each year.

For structured three separate forward contracts of the exchange of currencies, the forward price could be found as follows

Forward exchange rate * $1 million error = Dollar to be received

Year 1 = 1.50*(1.04/1.03) * 1 million euros

Year 1 =  1.514563106796117 * 1 million euros

Year 1 =    $1.5145 million

Year 2 = 1.50*(1.04/1.03)^2 * 1 million euros

Year 2 = 1.529267602978604 * 1 million euros

Year 2 = $1.5293 million

Year 3 = 1.50*(1.04/1.03)^3 * 1 million euros

Year 3 = $1.5441 million

The number of dollars each year is determined by computing the present value:

= 1.5145 / 1.04 + 1.5293 /(1.04)^2 +1.5441 / (1.04)^3

= 1.45625 + 1.41392 + 1.3727

= $4.24287 million per year

due to the changes the federal reserve is making the unused reserves will impact the economy by them facing inflation. inflation is definfed as the increase in pricing of a good or service but the decline of the value of money used for purchasing those items. when the economy has a high inflation rate, they are subject to money loss and hurt on the economy.

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