Question
Interest rates for money market deposits and loans with a time to maturity of 180 days: i(USD,180d)=2.00% p.a., i(EUR,180d)=0.75% p.a. Forward rate for a forward
Interest rates for money market deposits and loans with a time to maturity of 180 days: i(USD,180d)=2.00% p.a., i(EUR,180d)=0.75% p.a.
Forward rate for a forward contract with a time to maturity of 180 days F(180d)= USD 9.0200/EUR, spot rate S=USD 9.000/EUR
Question: Please show detailed workings
Describe the covered interest arbitrage trade of a USD investor. Remember that this trade is a zero investment trade, which means that you borrow the money that you are going to invest. That is, in which currency would you borrow the funds which you use to invest in the other currency? What is the arbitrage prot in USD terms?
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A Guide To Starting Your Hedge Fund
Authors: John Thompson, Erik Serrano Berntsen
1st Edition
0470519401, 978-0470519400
