Suppose that the interest rate of government bonds in the Euro Area at 1 year maturity is 10%, or i€ =0.10 At the same time , the interest rate of government bonds in the USA at 1 year maturity is 5%, or i$=0.05
Suppose that the spot exchange rate between Euro € and US Dollar $ is, in US Dollars, 1€=$1.37 The Forward Rate - according to the Covered Interest Parity - is [x]
a. Selling at Premium
b. Selling at Discount
c. Equal to the Spot rate
d. Not enough information