1. Assume the following information:

Quoted Price

Spot rate of Canadian dollar $.8405/C$

90day forward rate of Canadian dollar $.8385/C$

90day Canadian interest rate (a periodic rate) 1.85%

90day U.S. interest rate ( a periodic rate) 1.75%

1. Given this information, who has a covered interest arbitrage opportunity?

Answer either Canadian investors or U.S. investors.

2. What changes in the 4 quoted prices above would likely occur to eliminate any further possibilities of covered interest arbitrage? ( answer with just or )

Spot rate of Canadian dollar

90day forward rate of Canadian dollar

90day Canadian interest rate (a periodic rate)

90day U.S. interest rate ( a periodic rate)