3. Interest rate parity: The annual, riskless, nominal interestrate in the Eurozone is [– 0.5%]. The spot rate between the euro(EUR) and the dollar (USD) is USD 1.1074 / EUR and the 90-dayforward rate between the euro and the dollar is USD 1.0930 /EUR.
a) What is the annual, riskless, nominal interest rate in the USif interest rate parity holds?
b) What happens if interest rate parity is violated? Explain. (7points) a) Calculate annual, riskless, nominal interest rate in US:b) Answer the question here:
