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2. (Covered interest arbitrage) Assuming Investor A has $500,000, with a US dollar interest rate of 2% and a Chinese yuan interest rate of 3.5%.
2. (Covered interest arbitrage) Assuming Investor A has $500,000, with a US dollar interest rate of 2% and a Chinese yuan interest rate of 3.5%. In the foreign exchange market, the spot exchange rate for US dollars and Chinese yuan is 7.05, and the forward exchange rate is 6.9. First, determine if there is an opportunity for covered interest arbitrage. If there is, please explain how to proceed.
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