Covered interest parity refers to the situation in which:
a. interest rates are the same in both currencies.
b. spot and forward rates are the same in both currencies.
c. the forward rate between the two currencies is equal to the ratio of their returns times the spot rate between the two currencies.
d. there is an opportunity for arbitrage whenever prices are sluggish and sticky.
Answer: c. the forward rate between the two currencies is equal to the ratio of their returns times the spot rate between the two currencies.
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