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1. Suppose you are a US-based investor and you observe the following: The spot rate S(USD/CAD)=0.7216 and the 6-month forward rate is F(USD/CAD)=0.7132. The annualized,

1. Suppose you are a US-based investor and you observe the following: The spot rate S(USD/CAD)=0.7216 and the 6-month forward rate is F(USD/CAD)=0.7132. The annualized, 6- month, nominal interest rate is 4.8% in the U.S. and 10% in Canada. Discuss whether covered interest arbitrage is possible. If it is possible, describe the steps you would take to conduct it and calculate the arbitrage profit if you can borrow 721,600 USD or 1,000,000 CAD.
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1. Suppose you are a US-based investor and you observe the following: The spot rate S(USD/CAD)=0.7216 and the 6 -month forward rate is F(USD/CAD)=0.7132. The annualized, 6 month, nominal interest rate is 4.8% in the U.S. and 10% in Canada. Discuss whether covered interest arbitrage is possible. If it is possible, describe the steps you would take to conduct it and calculate the arbitrage profit if you can borrow 721,600 USD or 1,000,000CAD

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