17 The current spot exchange rate is US$1.00 per euro, and the one-year forward exchange rate is US$1.05
per euro. Assume that both covered interest rate parity and uncovered interest rate parity hold. Which of the following statements is correct?
(A) There is an expected 5% appreciation of the euros.
(B) The market expects the spot exchange rate one year from now to remain at US$1.00 per euro because the spot exchange rate is unaffected by the forward market.
(C) The euro is trading at a 5% forward discount; therefore, the US dollar is expected to depreciate by 5%.
(D) The forward exchange rate reflects only the inflation-rate differential between the two countries and cannot reflect the expected future exchange rate.