You has obtained forward contract quotations for the Thai baht to determine whether covered interest arbitrage may be possible.

• The quoted forward rate is $0.0255 per Thai baht for a 90-day forward contract.
• The current spot rate is $0.0248.
• Ninety-day interest in the U.S. is 2.255 percentage, whereas 90-day interest rates in Thailand are 3.85 percentage (these rates are not annualized).

Requirements:

a. Determine whether the forward rate is priced appropriately. [2 Mark]

b. If it is not, determine the profit you could generate by borrowing $200,000 from the a US bank and engaging in a covered interest arbitrage strategy. [8 Marks]