Explanation:
1.22` = 1.32 \frac{(1.06)}{(1 + R_{\text{EUR}})}
\Rightarrow R_{\text{EUR}} = \frac{1.32 \times 1.06}{1.22} - 1 = 0.14688
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Q.4189 Calculate the 1-year Euro interest rate that will satisfy the covered interest rate parity if the EUR/USD spot rate is $1.32 and the U.S. dollar has a 1-year interest rate of 6% and the EUR/USD forward rate is 1.22.
A
10.24%
B
29.32%
C
12.42%
D
14.69%
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