The three-month dollar interest rate in New York is 4.20% per annum. Alternatively, the three-month euro interest rate in Frankfort is 6.40% p.a. The current $/ spot exchange rate is $1.2120/. The euro three-month forward rate is quoted at $1.2180/.

Use the Interest Rate Parity formula (IRP) to show whether the interest rate parity condition is violated. If violated, at what 3-month forward rate would it hold? (make sure you use the correct relationship and pose the question correctly. You dont know the answer upfront, so you cant claim equality until you check it. (refer to my examples).