Suppose that the six-month interest rate in the United States is 6%, while the six-month interest rate in Mexico is 10%. Further, assume the spot rate of the peso is $0.25. the interest rates are the same as have been used throughout this problem. To start, you exchange your $500,000 (at the spot rate of $0.25 ) for 2,000,000 peso. After depositing these funds for 6 months, and earning a return of 10%, your deposit grows to 2,200,000 peso. When you convert your 2,200,000peso back to dollars, you end up with approximately , for a profit of about over your original $500,000. However, had you simply deposited your $500,000 in an account and accrued 6\% interest, you would have , for a profit of This example illustrates that covered interest arbitrage offer a significantly larger return than simply depositing the funds in a domestic account under interest rate parity. Suppose that the six-month interest rate in the United States is 6%, while the six-month interest rate in Mexico is 10%. Further, assume the spot rate of the peso is $0.25. the interest rates are the same as have been used throughout this problem. To start, you exchange your $500,000 (at the spot rate of $0.25 ) for 2,000,000 peso. After depositing these funds for 6 months, and earning a return of 10%, your deposit grows to 2,200,000 peso. When you convert your 2,200,000peso back to dollars, you end up with approximately , for a profit of about over your original $500,000. However, had you simply deposited your $500,000 in an account and accrued 6\% interest, you would have , for a profit of This example illustrates that covered interest arbitrage offer a significantly larger return than simply depositing the funds in a domestic account under interest rate parity