Business & Finance Assignment | Custom Assignment Help
December 7th, 2019
Assume that the Covered (CIP) and Uncovered Interest Parity (UIP) con- ditions hold, and that relative Purchasing Power Parity (PPP) is satisfied. You read in the newspaper that the current spot EUR/USD exchange rate is 1.20, and that the three-month EUR/USD forward exchange rate is 1.15. Are the following statements TRUE or FALSE when CIP, UIP, and relative PPP hold? Explain.
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a. (3 Points) The current US nominal interest rate exceeds that in Eu- rope.
b. (3 Points) The expected inflation rate in the US exceeds that in Eu- rope.
c. (4 Points) The current real interest rate in the US exceeds that in Europe.