Assume That Interest Rate Parity Holds Between the U

Multiple Choice

Assume that interest rate parity holds between the U.S. and Cyprus. The U.S. one-year interest rate is 7% and the Cyprus one-year interest rate is 6%. What is the approximate effective financing rate of a one-year loan denominated in Cyprus pounds assuming that the MNC covered its exposure by purchasing pounds one year forward?

A) 6%.
B) 7%.
C) 1%.
D) cannot answer without more information