Covered Interest Arbitrage, writing homework help

Anonymous
timer Asked: Jun 27th, 2017
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Question description

A U.S investor can borrow $1,000,000 or 500,000 GBP. The spot rate is $2.20/GBP, the one year forward rate is $2.24/GBP. The US one year interest rate is 14% and the one year British interest rate is 11%. Determine if there is a covered interest rate arbitrage opportunity, and if so, show each step involved in the arbitrage opportunity.


Tutor Answer

heathrow
School: Boston College

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RUNNING HEAD: FINANCE.

Covered Interest Arbitrage.
A U.S investor can borrow $1,000,000 or 500,000 GBP. The spot rate is $2.20/GBP; th...

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