Question
Assume the following information: Spot rate of Singapore Dollar $0.75 90-day forward rate of Singapore Dollar $0.74 90-day Singapore Interest Rate 4.5% 90-day U.S. Interest
Assume the following information:
- Spot rate of Singapore Dollar $0.75
- 90-day forward rate of Singapore Dollar $0.74
- 90-day Singapore Interest Rate 4.5%
- 90-day U.S. Interest Rate 2.5%
A. Given this information what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000)
B. What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
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Financial Institutions Management A Risk Management Approach
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
8th edition
978-0078034800, 78034809, 978-0071051590
