Based on the covered interest rate parity, if the risk-free rate for currency XXX is higher than that for currency YYY, XXX is weaker in the forward market than in the spot market. A currency trader noticesthat the interest rates in currencies USD and EUR are 3% and 5% per annum (respectively) and the spot exchangerate is EURUSD 1.2500. Based on the covered interest rate parity, how many percent will the euro appreciate or depreciate in one year?
Based on the covered interest rate parity, if the risk-free rate for currency XXX is higher than that for currency YYY, XXX is weaker in the forward market than in the spot market. A currency trader noticesthat the interest rates in currencies USD and EUR are 3% and 5% per annum (respectively) and the spot exchangerate is EURUSD 1.2500. Based on the covered interest rate parity, how many percent will the euro appreciate or depreciate in one year? A.appreciate 2%; B.appreciate 5%; C.depreciate 5%; D.depreciate 2%