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Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso= $ .100 1-year Forward rate of Mexican peso= $ .098 Mexican interest rate=

Covered Interest Arbitrage.Assume the following information:

Spot rate of Mexican peso= $ .100

1-year Forward rate of Mexican peso= $ .098

Mexican interest rate= 8%

US. interest rate=5%

Show how to identify any arbitrage opportunity based on the Interest Rate Parity (IRP). What is your strategy to achieve your profit? What is your arbitrage profit per $1,000,000 (CIA) ?

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