# Interest Parity Holds and Rates

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SUPPOSE THE SPOT RATE FOR THE POUND,MARK,AND SWISS FRANC ARE $1.30;$.35;AND$.40,RESPECTIVELY.THE ASSOCIATED 90-DAY INTEREST RATES(ANNUALIZED)ARE 16%;8%AND 4%WHILE THE US.90-DAY INTEREST RATE(ANNUALIZED)IS 12%.WHAT IS THE 90-DAY RATE ON AN ACU(ACU1=1POUND+1DM+1SFR)IF INTEREST PARITY HOLDS?

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Speculation tells us that the return for both investment should be the same.

If we invest 1 acu = 1pound + 1dm +1sfr = ...

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