Activities toward restoring the interest parity condition

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Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Which of the following is going to happen as a result of covered arbitrage activities toward restoring the interest parity condition? The €/$ spot exchange rate will rise The dollar interest rate will fall The euro interest rate will fall The €/$ forward exchange rate will fall.

Reference no: EM131983325

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