The One-Year CD Rates for Financial Institutions with AA Ratings

The one-year CD rates for financial institutions with AA ratings are 5 percent in the U.S. and 8 percent in France. An AA-rated U.S. financial institution can borrow by issuing CDs or lend by purchasing CDs at these rates in either market. The current spot rate is $0.20/Euro.
-What should be the one-year forward rate in order to prevent any arbitrage?

A) $0.1944/€.
B) $0.1975/€.
C) $0.2000/€.
D) $0.2025/€.
E) $0.2031/€.

Correct Answer:

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