Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United

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Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United States and 5.3 percent in Germany. In the spot market, 1 euro equals $0.80 dollar.

a. Is the 90-day forward rate trading at a premium or discount relative to the spot rate?

b. What is the 90-day forward rate?

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Financial management theory and practice

ISBN: 978-0324422696

12th Edition

Authors: Eugene F. Brigham and Michael C. Ehrhardt

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Question Posted: Mar 18, 2010 03:46 AM

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Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United

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Financial management theory and practice

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