# Risk-free covered interest arbitrage

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Assume that the Citibank trading room is dealing on the following quotations.

Spot Sterling=$1.5000

Euro-Sterling interest rate (6 months) = 11 percent p.a

Euro-$ interest rate (6 months)= 6 percent p.a

Also assume that Barclays is quoting forward sterling (6 months) at $1.4550

a. describe the transactions you would make to earn a risk-free covered interest arbitrage profits.

b. How much profit would you expect to make?

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##### Solution Summary

The solution describes the transactions for risk-free covered interest arbitrage. Citibank trading rooms in quotations are determined.

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Assume that the Citibank trading room is dealing on the following quotations.

Spot Sterling=$1.5000

Euro-Sterling interest rate (6 months) = 11 percent p.a

Euro-$ interest rate (6 months)= 6 percent p.a

Also assume that Barclays is quoting forward sterling (6 months) at $1.4550

a. describe the transactions you would make to earn a risk-free covered interest arbitrage profits.

Accoreding to interest ...

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