Question

4. Assume the following information is available for the U.S. and Europe US. 4% Europe % One-yeur nominal interest rate (animal interest rate) Spirate One year forward rale $1.13 $1.10 Toes IRP (interest rate panly) hold? b. Which investors have the advantage of conducting the covered interest arbitrage?

Answer 1

The IRP doesn't hold good.

As the Amount need to first borrowed at the European market. The European Investor has the advantage.

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