Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States

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Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $0.80 dollar.
a. Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
b. What is the 90-day forward rate?

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Corporate Finance A Focused Approach

ISBN: 978-1439078082

4th Edition

Authors: Michael C. Ehrhardt, Eugene F. Brigham

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