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    Calculating the interest rates by using IRP concept

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    Assume that Interest Rate Parity holds. The spot rate for the Euro is $1.20 and the one year forward rate is $1.23. The annual rate of interest in Germany on annual deposits is 2.439%. What is the annual rate of interest on deposits in the United States?

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    Solution Preview

    Spot Rate of Euro=$1.20
    Forward Rate of Euro=$1.23
    Interest Rate in Foreign country=2.439%
    Interest Rate in Home ...

    Solution Summary

    Solution depicts the steps to calculate the interest rate by using concept of "Interest Rate Parity".