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Consider the following prices from two different banks: 90-day deposits/loans: 1.2% 1.6% p.a. 90-day CAD deposits/loans: 2.4% 2.8% p.a. Spot exchange rates: 90 / CAD
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Consider the following prices from two different banks:
| 90-day deposits/loans: | 1.2% 1.6% p.a. |
| 90-day CAD deposits/loans: | 2.4% 2.8% p.a. |
| Spot exchange rates: | 90 / CAD 92 / CAD |
| 90-day forward exchange rates: | 80 / CAD 85 / CAD |
The earlier quote is a bid rate and the latter quote is an asked rate. The dealer has 1,000 for investment. Can the dealer do a covered interest arbitrage? In what currency are you going to invest? Provide detail
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