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1. Suppose the exchange rate between the U.S. dollar and the euro is $1 = €1.2....

1. Suppose the exchange rate between the U.S. dollar and the euro is $1 = €1.2. A currency trader thinks that the euro will equal $1 in the near future. What profitable trade can be done? Is there any risk in this trade?

2. Explain how a currency depreciation or devaluation can lead to inflation.

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