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The interest rate is 3% on the dollar and 6% on the pound sterling. Also, the current spot rate is $1.6 = 1 and the
The interest rate is 3% on the dollar and 6% on the pound sterling. Also, the current spot rate is $1.6 = 1 and the one-year forward rate is $1.5 = 1. Is there an opportunity for covered interest arbitrage? If yes, what is the arbitrage profit in terms of a percentage?
Select one:
a. Yes, 1.74%.
b. Yes, 2.02%.
c. No.
d. Yes, 4.71%.
e. Yes, 3.87%.
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