Covered Interest Arbitrage in Both Directions Assume that the existing U.S. one-year interest rate is 10 percent and the Canadian one-year interest rate is 11 percent. Also assume that interest rate parity exists. Should the forward rate of the Canadian dollar exhibit a discount or a premium? If U.S. investors attempt to engage in covered interest arbitrage, what will be their return? If Canadian investors attempt to engage in covered interest arbitrage, what will be their return?
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