Suppose that the interest rates in the U S and Germany are equal to 5 , that the forward (one year) value of the is F$ 1$ and that the spot exchange rate is E$ 0 75$ Please answer the following questions by explaining all steps of your analysis a Does the covered interest parity condition hold Why ...

a As the exchange rates are different with respect to the time we ...

Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward

Question:

Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis:
a. Does the covered interest parity condition hold? Why or why not?
b. How could you make a riskless profit without any money tied up assuming that there are no transaction costs in buying and or selling foreign exchange?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...