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5. If the European Union Central Bank rate is 3% higher than the U.S. Treasury...

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Finance

5. If the European Union Central Bank rate is 3% higher than the U.S. Treasury rate, according to covered interest rate arbitrage, realignment should result in the Euro spot rate to __________________ and the forward rate to __________________.

a. increase, decrease

b. decrease, increase

c. increase, increase

d. decrease, decrease

6. True or False. A perfect hedge is possible only when an MNC is in a position to maximize currency diversification.

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