Question 2:
Suppose that otherwise identical bonds are issued by a public
company in France denominated in Deutschmarks and French francs.
Suppose further that one-year forward exchange rate between the
franc and the mark is DM 1 = FF 2.4 while the current spot rate
is DM 1 = FF 2.25. Then the market interest rate on the mark
denominated bond will be about 6.667 percentage points below the
interest rate on the franc denominated bond because otherwise
investors will speculate by shifting funds between the two bonds.
True or False?