Explore BrainMass
Share

Explore BrainMass

    Covered Interest Arbitrage

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:04 am ad1c9bdddf
    https://brainmass.com/business/arbitrage-pricing-theory/covered-interest-arbitrage-361598

    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.

    $2.19