11 Covered interest arbitrage in both directions. Assume that the existing UK one-year interest rate is 10%

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11 Covered interest arbitrage in both directions.

Assume that the existing UK one-year interest rate is 10% and the EU one-year interest rate is 11%. Also assume that interest rate parity exists. Should the forward rate of the euro exhibit a discount or a premium?

If UK investors attempt covered interest arbitrage, what will be their return?

If euro-zone investors attempt covered interest arbitrage, what will be their return?

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Exploring Economics

ISBN: 9780324395464

4th Edition

Authors: Robert L. Sexton

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Question Posted: Oct 28, 2024 05:01 AM

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11 Covered interest arbitrage in both directions. Assume that the existing UK one-year interest rate is 10%

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