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Suppose the interest rate on a one-year US govt bond is 4%, for Spain it...

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Accounting

Suppose the interest rate on a one-year US govt bond is 4%, for Spain it is 5%, the dollar per euro (currency of Spain) spot exchange rate is 1.25 and the one year forward rate is 1.20. Does interest parity hold? If so explain why. If not, explain why not and illustrate and describe the economic forces that would bring about interest parity.

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