17 Covered interest arbitrage in both directions. The one-year interest rate in New Zealand is 6%. The
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17 Covered interest arbitrage in both directions.
The one-year interest rate in New Zealand is 6%. The one-year UK interest rate is 10%. The spot rate of the New Zealand dollar (NZ$) is £0.25. The forward rate of the New Zealand dollar is £0.27. Is covered interest arbitrage feasible for UK investors? Is it feasible for New Zealand investors? In each case, explain why a profit from covered interest arbitrage is or is not feasible.
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