Question
The current spot exchange rate is 0.70/$ and the six-month forwardexchange rate is 0.724/$. The six-month interest rate is 4.60 percent per annum in the
The current spot exchange rate is 0.70/$ and the six-month forwardexchange rate is 0.724/$. The six-month interest rate is 4.60 percent per annum in the United States and 4.40 percent per annum in France. You can borrow up to $500,000 or 400,000
a. Show how you can realize profit via covered interest arbitrage. What is thesize of your arbitrage profit [4]
b.Explain how the IRP will be restored as a result of covered arbitrage activities.[1 MARKS]
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Principles of Economics
Authors: Gregory Mankiw
7th edition
128516587X, 978-1285165875
