Does covered interest rate parity hold for the information given? If so, explain why. If not, explain what the forward rate would be when covered interest parity holds and other variables remain...

Extracted text: Does covered interest rate parity hold for the information given? If so, explain why. If not, explain what the forward rate would be when covered interest parity holds and other variables remain unchanged.


Extracted text: Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is o The 1-year interest rate on dollars is ius = 2.00% e$/£ $1.50/£ %3D o The 1-year interest rate on pounds is iUK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ %3D In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£