As a US investor willing to invest $1,000,000 with the information given below: Spot rate of £ =$1.60 180-day forward rate of £ =$1.56 180-day British interest rate = 4% 180-day US interest rate = 3% Is the Covered Interest Arbitrage by the investor is feasible? Explain Does the Interest Rate Parity Condition exist given the above information?

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
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As a US investor willing to invest $1,000,000 with the information given below:

  • Spot rate of £ =$1.60
  • 180-day forward rate of £ =$1.56
  • 180-day British interest rate = 4%
  • 180-day US interest rate = 3%

Is the Covered Interest Arbitrage by the investor is feasible? Explain

Does the Interest Rate Parity Condition exist given the above

information?

 

 

 

 

 

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