Question
Let's suppose you have $1 million to invest. You are considering to invest in UK first, then convert the British Pound back to US$ in
Let's suppose you have $1 million to invest.
You are considering to invest in UK first, then convert the British Pound back to US$ in the future.
You know following information:
Annual Interest rate on investment in US: 2%
Annual Interest rate on investment in UK: 4%
Investment period: 1 year
Current exchange rate: 1.48 $/BP
Forward exchange rate which you can apply when converting BP to US$: 1.45 $/BP
What would be profit if you apply the covered-interest arbitrage?
Group of answer choices
About $4,054
None of the above
About $2,425
About $4,838
About $4,176
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Essentials Of Investments
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
6th Edition
0073226386, 978-0073226385
