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4. You want to invest for 3 months and are looking at two investment alternatives: Investing in the U.S. at 9% per annum; Investing in
4. You want to invest for 3 months and are looking at two investment alternatives: Investing in the U.S. at 9% per annum; Investing in France at 5% per annum. The current spot exchange rate is 1.02 per dollar and the 3-month forward exchange rate is 0.98 per dollar. (a) [7 pts] Does covered interest parity (CIP) hold? Why? (b) [7 pts] Describe your arbitrage strategy. Assume that you currently do not have any money and need to borrow money to invest. (c) [6 pts] What is the arbitrage profit (in terms of $ per $1 invested)
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