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Assume the following information: You have $1,000,000 to invest: Current spot rate of pound = $1.40 The 90-day forward rate of pound = $1.38 3-month
Assume the following information:
You have $1,000,000 to invest:
Current spot rate of pound = $1.40 The 90-day forward rate of pound = $1.38 3-month deposit rate in the United States = 4% 3-month deposit rate in Great Britain = 5%
Required: (a) If you use covered interest arbitrage for a 90-day investment, compute the amount of U.S. dollars you will have after 90 days. (12 marks)
(b) Compute the yield of the investment.(4 marks)
(c) Comment on the yield of the investment that you computed in part (b) above of the question. (4 marks)
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