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    Covered Interest Arbitrage

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    Assume the following information:

    Spot rate of Russian ruble = $.100
    180 day forward rate of Russian ruble = $.098
    180 day Russian interest rate = 6%
    180 day U.S. interest rate = 5%

    Given this information, is covered interest arbitrage worthwhile for Russian investors who have pesos to invest? Calculate and Explain your answer.

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    Solution Preview

    We have Russian investors with Roubles to invest. They have two option
    1. Invest at 6% in Russia
    2. Convert Roubles to $, invest in US at 5% and then convert to Roubles on maturity by taking a foward cover at the start of the period (this ...

    Solution Summary

    The solution explains the calculations relating to Covered Interest Arbitrage.