Answer:
Step-by-step explanation:
In calculating the Interest parity condition is given as R$= R€+ (Ee$/€- E$/€)/E$/€where R$and R€ are the current interest rates on one-year dollar and euro deposits respectively, E$/€ is the spot exchange rate, and Ee$/€ is the one-year forward exchange rate. The interest rate difference between one-year dollar deposits and one-year euro deposits will be know when there is a difference between the dollar and euro because the interest difference must be equal to the forward premium on euro against dollars when covered interest parity holds.