Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent in
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Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent in the United States. Suppose further that the three-month forward rate on the Australian dollar (A$) is $1.01 and the spot rate for the A$ is $1.00. Does covered interest rate parity hold in this case? If not, what would arbitragers do?
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