Use the information below to check whether Interest Rate Parity holds or not. Show your work....

 

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Use the information below to check whether Interest Rate Parity holds or not. Show your work. If IRP does not hold, briefly explain where you would borrow and where you would invest in the covered interest arbitrage strategy and why. Current spot rate of New Zealand dollar (USD/NZD) 0.60 One-year forward rate of the New Zealand dollar (USD/NZD) 0.57 Annual interest rate on New Zealand dollars (in %) 4.39 Annual interest rate on U.S. dollars (%) 1.39 Use the information below to check whether Interest Rate Parity holds or not. Show your work. If IRP does not hold, briefly explain where you would borrow and where you would invest in the covered interest arbitrage strategy and why. Current spot rate of New Zealand dollar (USD/NZD) 0.60 One-year forward rate of the New Zealand dollar (USD/NZD) 0.57 Annual interest rate on New Zealand dollars (in %) 4.39 Annual interest rate on U.S. dollars (%) 1.39

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To check whether interest rate parity holds or not we can compare the expected return on investing i... View the full answer