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# Assume that Interest Rate Parity holds The spot rate for the Euro i

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Assume that Interest Rate Parity holds. The spot rate for
the Euro is \$1.22 and the one year forward rate is \$1.25.
The annual rate of interest in France on annual deposits is
3.439%. What is the annual rate of interest on deposits in
the United States? Also, please do not approximate.
Solution
[Forward Rate /Spot Rate] = [1+ Interest Rate of Home
Currency/1+Interest rate of Foreign Currency]
Assume Interest Rate in Home Currency is X
1.25/1.22 = [1+X]/[1+0.03439]
X = 6.0348%
Annual rate of interest on deposits in the United States =
6.035%

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Assume that Interest Rate Parity holds. The spot rate for the Euro is \$1.22 and the one year forward rate is \$1.25. The annual rate of interest in France on annual deposits is 3.439%. What is the annual rate of interest on deposits in the United States? Also, please do not approximate. Solution [F ...
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