Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Which of the following is going to happen as a result of covered arbitrage activities toward restoring the interest parity condition?
The euro interest rate will fall
The dollar interest rate will fall
The €/$ spot exchange rate will rise
The €/$ forward exchange rate will fall