Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7.  Now if there is a transaction cost of 1% for any covered interest arbitrage, about potential covered interest arbitrage between Cambodia and Vietnam _____. a. money will flow to Vietnam b. money will flow to Cambodia c. there will be no CIA

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A:

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