Forward rate currently exhibits discount

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Assume that the annual U.S. interest rate is currently 8% and Germany's annual interest rate is currently 9%. The euro's 1-year forward rate currently exhibits a discount of 2%.

(a) Does IRP exist?

(b) Can a U.S. firm benefit from investing funds in Germany using CIA?

(c) Can a German subsidiary of a U.S. firm benefit by investing funds in the United States through CIA?

Reference no: EM131077929

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