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A foreign exchange trader can invest US$3.2 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$3.2 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, what is the rate of return? (rounded) Arbitrage Funds available $3,200,000 Spot exchange rate (/US$) 1.2477 90-day forward rate (/US$) 1.2450 90-day US dollar interest rate 2.5% 90-day British interest rate 1.5% Yes; 1.72% Yes; 0.59% O No; 0% Yes; 0.16% Yes; 1.28%
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