The practice of investing in a currency that offers the higher return on a covered basis is

known as covered interest arbitrage. Assume that the Eurodollar rate is $8\%$ per annum,

and that the Euroyen rate is $5\%$ per annum. If the spot rate is $\frac{106}{\text{\$}}$ and the $180$ days

forward rate is $\frac{102\mathrm{.}5}{\text{\$}},$

The interest rate difference is $,.$

Forward premium is

$\%.$

There is

covered interest arbitrage opportunity, since the interest rate difference

the forward premium.

In order to enjoy covered interest arbitrage opportunity correct strategy is to:

You should borrow

and invest in

The arbitrage amount you can enjoy if you can borrow upto $1$ million US dollars or its

equivalent yens is

USD.