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Assume that you are the CFO of a large company that has a lot of cash, the CEO of the company wants to invest some
Assume that you are the CFO of a large company that has a lot of cash, the CEO of the company wants to invest some of the cash temporarily either in 90 days US treasury in dollars or 9D days French government security in Euro: You are asked for advice, and you are given the following information: Let im = 90-day interest rate in New York. Let Paris = SUI-day interest rate in Paris. Let E (e) = the expected spot rate in 90 days. Your advice to the CED must be based on: Explain why this equation represents the Interest Rate Parity theorem? How you can persuade your CED that the Interest Rate Parity theorem is a reliable tool in forecasting the DollarfEuro parity at the maturity date
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