Assume the following information: 1-year deposit rate offered by U.S. banks = 12

Question

Assume the following information:

1-year deposit rate offered by U.S. banks = 12%
1-year deposit rate offered on Swiss francs = 10%
1-year forward rate of Swiss francs = $0.62
Spot rate of Swiss franc = $0.60

Does interest rate parity exists between the U.S. and Switzerland?
Answer
Yes because Swiss franc is trading at 3.33% premium which is as per the IRP
No because Swiss franc is trading at 3.33% premium, and not 1.82% as per the IRP
Yes because Swiss franc is trading at 3.23% discount which is as per the IRP
No because Swiss franc is trading at 3.33% premium, and not 1.79% as per the IRP

Explanation / Answer

Yes because Swiss franc is trading at 3.23% discount which is as per the IRP

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