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IRP Application to Short-Term Financing Connecticut Co. plans to finance its U.S. operations. It can borrow euros on a short-term basis at a lower interest
IRP Application to Short-Term Financing Connecticut Co. plans to finance its U.S. operations. It can borrow euros on a short-term basis at a lower interest rate than if it borrowed dollars.
If interest rate parity does not hold, what strategy should Connecticut Co. consider when it needs short-term financing?
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?
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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