Suppose That the One-Year Interest Rate Is 5

question 1

Multiple Choice

Suppose that the one-year interest rate is 5.0 percent in the United States; the spot exchange rate is $1.20/€; and the one-year forward exchange rate is $1.16/€. What must one-year interest rate be in the euro zone to avoid arbitrage?

• A)5.0%
• B)6.09%
• C)8.62%
• D)None of the above

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Definitions:

Poor Hygiene

Inadequate cleanliness practices that can lead to health issues and the spread of diseases.

Epidermis

The exterior layer of skin that acts as a waterproof barrier and determines our skin tone.

Ringworm

A fungal infection of the skin, characterized by a red, circular rash with clearer skin in the center, causing itching and discomfort.

Lunula

The white, half-moon-shaped area at the base of a nail.