Question: Suppose that the current spot exchange rate is 0 , 8 0 / S and the three - month forward exchange rate is 0 .

Suppose that the current spot exchange rate is 0,80/S and the three-month forward exchange rate is 0.7813/S. 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 dollar interest rate will fall The euro interest rate will fall The /S forward exchange rate will fall The /S spot exchange rate will rise

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