Question
Suppose that the interest rate on the 6 months Treasury bill is 10% in Lusaka and 12% New york and the spot rate is K18.66/$.
Suppose that the interest rate on the 6 months Treasury bill is 10% in Lusaka and 12% New york and the spot rate is K18.66/$.
(a) How can a Zambian investor undertake uncovered interest arbitrage
(b) ) How can the Zambian investor who has K500, 000 undertake covered interest arbitrage if the dollar is at three month forward premium of 1% (per year)? How much would the Zambian investor earn on his foreign investment?
Step by Step Solution
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Step: 1
A Zambian investor can borrow money from Lusaka at 10 and invest it ...
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Money Banking And The Financial System
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
3rd Edition
134524063, 9780134524573, 978-0134524061
