Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen. In the 90-day forward market, $1 = 1.84 Swiss francs and $1 = 127 Japanese yen. Assume that interest rate parity holds worldwide. Which of the following statements is most CORRECT?
A. Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Swiss securities.
B. Interest rates on 90-day risk-free U.S. securities are higher than the interest rates on 90-day risk-free Japanese securities.
C. Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Japanese securities.
D. Since interest rate parity holds interest rates should be the same in all three countries.
E. Interest rates on 90-day risk-free U.S. securities equal the interest rates on 90-day risk-free Swiss securities.
Answer: B
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