14 Interest rate parity. Trellis Ltd has determined that the interest rate on euros is 16% while...
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14 Interest rate parity. Trellis Ltd has determined that the interest rate on euros is 16% while the UK interest rate is 11% for one-year Treasury bills. The oneyear forward rate of the euro has a discount of 7%.
Does interest rate parity exist? Can Trellis achieve a higher effective yield by using covered interest arbitrage than by investing in UK Treasury bills? Explain.
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