What is the one year forward rate predicted to be assuming interest rate parity holds true?

The interest rate on EUR deposits is 7%. The interest rate on GBP deposits is 5%. The spot rate is EUR/GBP0.8500.

What is the one year forward rate predicted to be assuming interest rate parity holds true?
A . 0.8662
B . 0.8341
C . 0.7500
D . 0.9633

View Answer

Answer: B