The mani tude of the spread of a currecy is positively correlated with its liquidity, i.e., a high spead leads to a high liquidity. a) True b) False Assume that interest rate parity holds, and the euro's interest rate is 9 percent while the U.S. interest rate is 12 percent. Then the euro's interest rate decreases to 8 percent while the U.S. interest rate remains the same. As a result of the increase in the interest rate on euros, the euro's forward will in order to maintain interest rate parity. a) discount; increase b) discount; decrease c) premium; increase d) premium; decrease In which case will locational arbitrage most likely be feasible? a) One bank's bid price for a currency is less than another bank's bid price for the currency. b) One bank's bid price for a currency is greater than another bank's ask price for the currency. c) One bank's ask price for a currency is less than another bank's ask price for the currency. d) One bank's ask price for a currency is greater than another bank's bid price for the currency. e) None of the above If the interest rate in Japan yen is 3%, while American interest rate is 1%. The yen's forward rate (against USD) should exhibit a premium of about 2 percent. a) True b) False