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 the following information:
Annual Interest rate on investment in US: 2%
Annual Interest rate on investment in UK: 1%
Investment period: 1 year
Current exchange rate: 1.52 $/BP
The forward exchange rate which you can apply when converting BP to US$: 1.51 $/BP
What will be the profit or loss if you apply the covered-interest arbitrage?
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Public Finance
Authors: Richard W. Tresch
3rd Edition
012415834X, 9780124158344
