Question
A. The following information is available: You have 500,000 to invest The current spot rate of the Moroccan dirham is 0.082 The 60-day forward rate
A. The following information is available: You have 500,000 to invest The current spot rate of the Moroccan dirham is 0.082 The 60-day forward rate of the Moroccan dirham is 0.080 The interest rate in the United Kingdom is 0.5 % p.a. The interest rate in Morocco is 2 % p.a. (i) What is the yield to a UK investor who conducts a 60-day covered interest arbitrage? Did covered interest arbitrage work for the investor in this case? Assume no transaction costs and 360 days in a year. What does this imply for the Interest Rate Parity (IRP)? (ii) Assume that a Moroccan investor is able to borrow 500,000, would covered interest arbitrage be possible for a Moroccan investor in this case?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started