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Use the following information to answer questions 20-21 The 1-year risk-free interest rate in the US is 5% and the 1-year risk free interest rate
Use the following information to answer questions 20-21 The 1-year risk-free interest rate in the US is 5% and the 1-year risk free interest rate in the U.K. is 8%. The current spot rate is $ 1.50/Pound and the current 1-year forward rate is $1,48/Pound. Which statement is correct? IRP holds so covered interest rate arbitrage profit is not possible. Covered interest rate arbitrage involves borrowing in USD and investing in Pounds. Covered interest rate arbitrage involves borrowing in Pounds and investing in USD. Covered interest rate arbitrage involves borrowing in USD and Investing in USD > Question 21 1 pts Use the following information to answer questions 20-21 The 1-year risk-free interest rate in the US is 5% and the 1-year risk free interest rate in the U.K. is 8%. The current spot rate is $ 1.50/Pound and the current 1-year forward rate is $1.48/Pound, What is the covered interest rate arbitrage profit in USD that you will realize in one year if you can borrow today 1 million of whichever currency you decide to borrow in? USD 15,600 USD 20,625 IRP holds so covered interest rate arbitrage is not possible. USD 19.800
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