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show steps suppose that the annual interest rate is 2.0 percent in the united states and 4 percent in Germany, and that the spot exchange
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suppose that the annual interest rate is 2.0 percent in the united states and 4 percent in Germany, and that the spot exchange rate is $1.60/euro and the forward exchange rate, with one-year maturity, is $1.58/euro. Assume that an arbitrager can borrow up to $1,000,000 or 625,000euro. a) Determine whether interest rate parity is currently holding. Please calculate equilibrium rate b) If IRP is not holding, how would you carry out covered interest arbitrage? Show steps to determine arbitrage profit. C) Explain how IRP will be restored as a result of covered arbitrage activities Step by Step Solution
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