The following current rates have been observed: Spot exchange rate: $1.25/SFr Expected future spot rate in 90 days: $1.2625/SFr Annual interest rate on 90-day U.S.-dollar-denominated bonds: 12% Annual interest rate on 90-day SFr-denominated bonds: 4% (i) At these initial rates, does uncovered interest parity hold? Why? (ii) What spot exchange rate will be consistent with uncovered interest parity?

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