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X0USD/EUR = 1.29; rUSD = 3%; rEUR = 9%; E(X1USD/EUR) = 1.19. Which of the following two statements is correct?
S1: A carry-trader would earn a profit if the USD/EUR spot rate would remain unchanged during the duration of the carry trade.
S2: A carry-trader would go short EUR at t=0.
Both statements are correct
S1 is correct and S2 is false
S2 is correct but S1 is false
Both statements are false
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