QUESTION 10

1. Assume the following information:

   Current spot rate of New Zealand dollar	=	$.41
   Forecasted spot rate of New Zealand dollar 1 year from now	=	$.43
   One-year forward rate of the New Zealand dollar	=	$.42
   Annual interest rate on New Zealand dollars	=	8%
   Annual interest rate on U.S. dollars	=	9%

   Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____ percent.

   	a.	about 11.12
   	b.	about 11.64
   	c.	about 11.97
   	d.	about 10.63

2.5 points

QUESTION 11

1. Assume the bid rate of a Swiss franc is $.57 while the ask rate is $.579 at Bank X. Assume the bid rate of the Swiss franc is $.560 while the ask rate is $.566 at Bank Y. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?

   	a.	$7,067
   	b.	$12,238
   	c.	$8,556
   	d.	$10,114

2 points

QUESTION 12

1. Assume the following information:

   You have $1,000,000 to invest:

   Current spot rate of pound	=	$1.60
   90-day forward rate of pound	=	$1.57
   3-month deposit rate in U.S.	=	3%
   3-month deposit rate in U.K.	=	4%

   If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?

   	a.	$1,094,230
   	b.	$1,045,600
   	c.	$1,020,500
   	d.	$1,073,330