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1.Assume the following information: Quoted Price Spot rate of Singapore dollar $.75 90day forward rate of Singapore dollar $.74 90day Singapore interest rate 4.5% 90day
1.Assume the following information:
Quoted Price
Spot rate of Singapore dollar $.75
90day forward rate of Singapore dollar $.74
90day Singapore interest rate 4.5%
90day U.S. interest rate 2.5%
Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage?(Assume the investor invests $1,000,000.)
What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
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