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6. Covered Interest Arbitrage. Assume the following information: Spot rate of Canadian dollar = $.80 90 day forward rate of Canadian dollar $.79 90-day Canadian

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6. Covered Interest Arbitrage. Assume the following information: Spot rate of Canadian dollar = $.80 90 day forward rate of Canadian dollar $.79 90-day Canadian interest rate = 2.5% 90 day U.S. Interest rate Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor in- vests Sl million.) What market forces would occur to eliminate any further possibilities of covered in- terest arbitrage

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