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Suppose you observe a spot exchange rate of $1.50/. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone
Suppose you observe a spot exchange rate of $1.50/. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone.
1. [5 pts] Explain what is needed for covered interest arbitrage to be possible given the information above?
2. [5 pts] What must the missing information be for the covered interest arbitrage opportunity to be eliminated? Quantify that information.
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Finance Capital Markets Financial Management And Investment Management
Authors: Frank J. Fabozzi, Pamela Peterson Drake
1st Edition
0470407352, 978-0470407356
