Historical data has shown that Interest Rate Parity (IRP) holds while Purchasing Power Parity (PPP) and International Fisher Effect (IFE) does not hold. Which of the following statements explains this observation the best? I. The above statement is false, PPP and IFE take into consideration inflation while IRP does not and therefore it is IRP that does not hold. II. IRP predicts the future rate while PPP and IFE predicts the future spot rate. III. IRP predicts the forward rate which is set by banks while PPP and IFE predict the future spot rate which is an expectation. IV. The above statement is false, IRP and IFE are equivalent and both hold. It is only PPP that does not hold. V. The use of covered interest arbitrage ensures the existence of IRP at equilibrium but not PPP or IFE.

		Statements I and II are correct.
		Statements I and IV are correct.
		Statements II and V are correct.
		Statements II and III are correct.
		Statements III and V are correct.