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Covered Interest Arbitrage. Assume the following information: Quoted Price Spot rate of Canadian dollar $.90 90day forward rate of Canadian dollar $.88 90day Canadian interest

Covered Interest Arbitrage. Assume the following information:

Quoted Price

Spot rate of Canadian dollar $.90

90day forward rate of Canadian dollar $.88

90day Canadian interest rate 4.4%

90day U.S. interest rate 1.6%

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.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage?

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