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