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Forward rate implied by interest rate

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Given the following information, which of the following statements is most true?

Spot Rate to purchase one euro: $1.19 per euro

Forward Rate to purchase one euro in 12 months: $1.17 per euro

U.S. risk-free rate: 1.5%

Italian risk-free rate: 1.8%

A. Interest rate parity holds in this example

B. Interest rate parity does not hold and the forward rate implied by interest rate parity is higher than the stated forward rate of $1.17 per euro

C. Interest rate parity does not hold and the forward rate implied by interest rate parity is lower than the stated forward rate of $1.17 per euro

Reference no: EM132613237

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