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(Ch. 7) Covered Interest Arbitrage. Assume the following information: St = 26 EURMXN Ft,180 = 27 EURMXN iEUR = 1% iMXN = 5% T =

(Ch. 7) Covered Interest Arbitrage. Assume the following information:

St = 26 EURMXN

Ft,180 = 27

EURMXN iEUR = 1%

iMXN = 5%

T = 180 days

Given this information, is covered interest arbitrage possible? (5 points) Design a covered arbitrage strategy and calculate its profits. (12 points)

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