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 March 4, 2021, 10:46 pm ad1c9bdddf
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 ...
The solution explains the calculations relating to Covered Interest Arbitrage.