Consider each of the following events.
September 3, 2020
Martha realizes that the microwave she bought is faulty after a month of purchase. The manufacturer of the microwave asks Martha to pay the repair expenses as the fault was with a part that was out of
September 3, 2020

 Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent in the United States. Suppose further that the three-month forward rate ($/$) on the Australian dollar (A$) is $1.01 and the spot rate $/$ = $1.00/$. Does covered interest rate parity hold in this case? If not, what would arbitragers do? [USA: home country, Australia: foreign country]. [5 MARKS]

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