The oneyear interest rate in New Zealand is 4 percent. The oneyear U.S. interest rate is 10 percent. The spot rate of the New Zealand dollar (NZS) is $0.50. The forward rate of the New Zealand dollar is S0.54. a) Calculate the covered interest arbitrage profit if feasible for U.S. investors. Assume you start with $1,000,000. b) Calculate the covered interest arbitrage profit if feasible for New Zealand investors. Assume you start with NZS1,000,000.

The oneyear interest rate in New Zealand is 4 percent. The oneyear U.S. interest rate is 10 percent. The spot rate of the New Zealand dollar (NZS) is $0.50. The forward rate of the New Zealand dollar is S0.54. a) Calculate the covered interest arbitrage profit if feasible for U.S. investors. Assume you start with $1,000,000. b) Calculate the covered interest arbitrage profit if feasible for New Zealand investors. Assume you start with NZS1,000,000.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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