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Mr . Lee is a currency speculator. He observes the following information: ili. US annual interest rate is 2 . 5 % UK annual interest
Mr Lee is a currency speculator. He observes the following information:
ili.
US annual interest rate is UK annual interest rate is Spot rate is $
Oneyear Forward rate of pound is $&
With reference to IRP explain if it is possible for both parties to benefit from covered interest arbitrage. marks
Explain how covered interest arbitrage can be done to obtain profits. You can start with either # or
marks
Explain how market forces would react to ensure that covered interest arbitrage is no longer feasible. marks
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