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The following exchange rate and interest rate quotes for the UK pound and the euro are available: Currency Spot rate 3month-forward rate 3 month -Interest
The following exchange rate and interest rate quotes for the UK pound and the euro are available: Currency Spot rate 3month-forward rate 3 month -Interest rate (annualized) 8.00% UK pound 1.5523-35/ 1.5288-337/ Euro 3.96% Required: (a) Demonstrate the validity of the Interest Rate Parity condition and discuss your result.. (b) Show how to realize a profitable opportunity via covered interest rate arbitrage and calculate the profit per 1,000,000 arbitraged. (c) Discuss the implications of Interest Rate Parity for the determination of exchange rates
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