Suppose India is home country and USA is foreign country. Interest rate in India is 3%, that in US is 1%. The Re-$ exchange rate is Rs. 80 per USD in spot market and Rs. 81 per USD in 3 month forward market. Which of the following are true for the resulting covered interest arbitrage flows?
(A) Indian Rupee will depreciate in spot market
(B) Indian Rupee will depreciate in forward market
(C) Interest rate will decline in India
(D) Interest rate will decline in US
Choose the correct answer from the options given below:
1
(A) and (B) Only
2
(A) and (C) Only
3
(A) and (D) Only
4
(A), (B), (C) and (D)