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Suppose you observe that one-year interest rates in the U.S and U.K are 8% and 10%, respectively. The current spot rate is $1.48/Pound and the
Suppose you observe that one-year interest rates in the U.S and U.K are 8% and 10%, respectively. The current spot rate is $1.48/Pound and the one-year forward rate is $1.46/Pound. You have a $1,000,000 line of credit in the U.S (your home country) and a $800,000 line of credit in the U.K (the foreign country).
1.Suppose you decide to undertake a covered interest arbitrage procedure. What is your expected profit/loss at the end of one year?
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