Problem
Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot exchange rate is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis:
Does the covered interest parity condition hold? Why or why not?
How could you make a riskless profit without any money tied up assuming that there are no transaction costs in buying and or selling foreign exchange?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.