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a. Provo should not consider investing in NZ$ and simultaneously selling NZ$ 1 year forward because the effective yield would be 6 percent, the same as the yield in the United States.

b. If Provo invests in NZ$, then its yield is expected to exceed the U.S. interest rate but be less than the NZ$ interest rate.

c. If the NZ$ spot rate in 1 year is lower than today's forward rate, the effective yield will be lower than the U.S. interest rate of 6 percent.

Statistics and Probability, Statistics

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