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Assume that covered interest rate parity (IRP) exists (meaning, there is no arbitrage opportunity). a. Would the annualized 1-month Canadian risk-free interest rate be above,
Assume that covered interest rate parity (IRP) exists (meaning, there is no arbitrage opportunity). a. Would the annualized 1-month Canadian risk-free interest rate be above, below, or equal to the US risk-free interest rate (in order for IRP to hold)? Explain. b. Calculate what the annualized 1-month Canadian interest rate would be if the US 1-month rate (annualized) is 0.71%.
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