How the equation in covered interest parity is derived

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Reference no: EM131393491

Covered Interest Parity

a. Show how the equation in covered interest parity is derived. Explain the theory.

b. Assume the current $/Euro exchange rate on the $/Euro exchange rate on the FORWARD market is 1.05 dollars per Euro. If the US interest rate is 6% and the EU interest rate is 10%, show what the current $/Euro SPOT market exchange would be under the theory of covered interest rate parity.

Reference no: EM131393491

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