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6. Covered Interest Arbitrage Assume the following information: $0.80 $0.79 Spot rate of Canadian dollar 90-day forward rate of Canadian dollar 90-day Canadian interest rate
6. Covered Interest Arbitrage Assume the following information: $0.80 $0.79 Spot rate of Canadian dollar 90-day forward rate of Canadian dollar 90-day Canadian interest rate 90-day U.S. interest rate 4% 2.5% Given this information, what would be the yield (percentage return) to a U.S. investor who used cov- ered interest arbitrage? (Assume the investor invests $1 million.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage
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