Question
A foreign exchange trader can invest US$10 million, or the foreign currency equivalent in a covered interest arbitrage. Using the following quotes, should the trader
A foreign exchange trader can invest US$10 million, or the foreign currency equivalent in a covered interest arbitrage. Using the following quotes, should the trader make a covered interest arbitrage and if so, how much would be the dollar return?
| Arbitrage Funds available | $10,000,000 |
| Spot exchange rate (CA$/US$) | 1.257 |
| 100-day forward rate (CA$/US$) | 1.259 |
| 100-day US dollar interest rate | 1.50% |
| 100-day Canada interest rate | 1.75% |
Group of answer choices
Yes; $32,648.27
No; $0
Yes; $9,018.40
Yes; $41,666.67
Yes; -$9,018.40
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Financial Markets And Institutions
Authors: Anthony Saunders, Marcia Cornett
4th Edition
0077262379, 978-0077262372
