Covered Interest Arbitrage in Both Directions The following information is available:

■ You have $500,000 to invest.

■ The current spot rate of the Moroccan dirham is

$.110.

■ The 60-day forward rate of the Moroccan dirham is

$.108.

■ The 60-day interest rate in the United States is 1 percent.

■ The 60-day interest rate in Morocco is 2 percent.

a. What is the yield to a U.S. investor who conducts covered interest arbitrage? Did covered interest arbitrage work for the investor in this case?

b. Would covered interest arbitrage be possible for a Moroccan investor in this case?

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