Suppose that the one-year U.S.interest rate is 5% and the equivalent one-year Swiss interest rate is 4%.According to the covered interest rate parity,there is a forward discount on the Swiss franc.

Question

Quizplus · Accepted Answer

Covered interest rate parity states that the forward exchange rate should reflect the interest rate differential between the two currencies. In this case, the US dollar has a higher interest rate than the Swiss franc, so the forward exchange rate should be at a premium for the Swiss franc, not a discount. Therefore, the statement given in the question is false.

Suppose That the One-Year U