Mark an American has $6 million that he intends to invest in Kenya. The macroeciomic variables of the two countries were: Interest rates: Kenyan Interest Rates -7% / USA Interest Rates- 5% Inflation rates: Kenyan Inflation rates - 6% / USA Inlfation Rates- 3% Gross Domestic Product - Kenya - 9% / USA - 5% The spot rate was ksh 114/$. The estimated period for the investment by Mark was one year. Mark entered into a forward contract to insulate the dollar.at ksh 115/$. Required: (a) Compute the covered interest arbitrage (b) State and explain the factors that influence covered interest arbitrage
Mark an American has $6 million that he intends to invest in Kenya. The macroeciomic variables of the two countries were: Interest rates: Kenyan Interest Rates -7% / USA Interest Rates- 5% Inflation rates: Kenyan Inflation rates - 6% / USA Inlfation Rates- 3% Gross Domestic Product - Kenya - 9% / USA - 5% The spot rate was ksh 114/$. The estimated period for the investment by Mark was one year. Mark entered into a forward contract to insulate the dollar.at ksh 115/$. Required: (a) Compute the covered interest arbitrage (b) State and explain the factors that influence covered interest arbitrage
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 42QA
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Mark an American has $6 million that he intends to invest in Kenya. The macroeciomic variables of the two countries were:
Interest rates: Kenyan Interest Rates -7% / USA Interest Rates- 5%
Inflation rates: Kenyan Inflation rates - 6% / USA Inlfation Rates- 3%
The spot rate was ksh 114/$. The estimated period for the investment by Mark was one year. Mark entered into a forward contract to insulate the dollar.at ksh 115/$.
Required:
(a) Compute the covered interest arbitrage
(b) State and explain the factors that influence covered interest arbitrage
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