Multiple Choice
The one-year CD rates for financial institutions with AA ratings are 5 percent in the U.S. and 8 percent in France. An AA-rated U.S. financial institution can borrow by issuing CDs or lend by purchasing CDs at these rates in either market. The current spot rate is $0.20/Euro.
-What should be the spot rate in order for no arbitrage to take place, assuming the one-year forward rate is $0.1975/€?
A) $0.1944/€.
B) $0.1975/€.
C) $0.2000/€.
D) $0.2025/€.
E) $0.2031/€.
Correct Answer:
Verified
Correct Answer:
Verified
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