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    Covered interest arbitrage in the USA

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    Assume the current spot rate is C$1.2103 and the one year forward rate is C$1.1952. The nominal rish free rate in Canada is 3% while it is 4 % in the US. Using covered interest arbitrage you can earn an extra ____________profit over that which you would earn if you invested $1. in the US

    a. $0.003
    b. $0.006
    c. $0.008
    d. $0.015
    e. $0.018

    © BrainMass Inc. brainmass.com October 10, 2019, 1:28 am ad1c9bdddf
    https://brainmass.com/business/arbitrage-pricing-theory/covered-interest-arbitrage-usa-335975

    Solution Preview

    Let us do it with $100
    We start with $100 and convert to C$ = 100 X 1.2103 = C$121.03. We invest this is Canada at 3%. At the end ...

    Solution Summary

    The solution explains how to calculate the profit that can be made using covered interest arbitrage

    $2.19