Suppose That the One-Year Forward Price of Euros in Terms

Multiple Choice

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions

A) interest parity does not hold.
B) interest parity does hold.
C) it is hard to tell whether interest parity does or does not hold.
D) interest parity fluctuates.
E) Not enough information is given to answer the question.