Interest Rate Parity Dallas Co. has determined that the interest rate on euros is 16 percent while
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Interest Rate Parity Dallas Co. has determined that the interest rate on euros is 16 percent while the U.S. interest rate is 11 percent for 1-year Treasury bills.
The 1-year forward rate of the euro has a discount of 7 percent. Does interest rate parity exist? Can Dallas achieve a higher effective yield by using covered interest arbitrage than by investing in U.S. Treasury bills? Explain.
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