Question
Suppose that the 1 year interest rate is 5% in the United States; the spot exchange rate is $1.20/ ; and the 1 year forward
Suppose that the 1 year interest rate is 5% in the United States; the spot exchange rate is $1.20/ ;
and the 1 year forward exchange rate is $1.16/. What must the 1 year interest rate in the euro zone to avoid arbitrage?
A. 6.1%
B. 5.0%
C. 1.5%
D. 8.6%
E. None of the above
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Public Finance A Contemporary Application Of Theory To Policy
Authors: David N. Hyman
9th Edition
0324537190, 9780324537192
