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Generally, if interest rate parity holds and the forward rate is an unbiased predictor of the...

Generally, if interest rate parity holds and the forward rate is an unbiased predictor of the future spot rate, then a U.S. firm with excess funds for 3 months should invest in money market securities in a. the country with the highest interest rate b. the country whose currency is least volatile against the dollar c. the country with the lowest interest rate d. the U.S.

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Answer #1

Answer: Option [d] the U.S.

Explanation:

As the IRPT holds good there would be no chance for covered interest rate arbitrage. Hence, investing in US is the best alternative.

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