Below is information about the spot and forward rates for three currencies against the US dollar (USD):
(a) Critically discuss the interest rate parity and covered interest arbitrage theories.
(b) Discuss the conditions for interest rate parity theory to hold.
(c) Use the spot exchange rates to check if interest rate parity holds or not, given the following six-month interest rates:
United States 5.60 per cent
Euro area 3.40 per cent
Japan 1.00 per cent
Britain 5.25 per cent