IRP Application to Short-Term Financing a. If interest rate parity does not hold, what strategy should Connecticut
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IRP Application to Short-Term Financing
a. If interest rate parity does not hold, what strategy should Connecticut Co. consider when it needs short-term financing?
b. Assume that Connecticut Co. needs dollars. It borrows euros at a lower interest rate than that for dollars. If interest rate parity exists and if the forward rate of the euro is a reliable predictor of the future spot rate, what does this suggest about the feasibility of such a strategy?
c. If Connecticut Co. expects the current spot rate to be a more reliable predictor of the future spot rate, what does this suggest about the feasibility of such a strategy?
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