Business

FinanceInternational Financial ManagementLimitations of Covered Interest Arbitrage Assume that the one-year U.S. interest rate is 11 percent, whereas the one-year interest rate in Malaysia is 40 percent. Assume that a U.S. bank is willing to purchase the currency of that country from you one year from now at a discount of 13 percent. Would covered interest arbitrage be worth considering? Is there any reason why you should not attempt to engage in covered interest arbitrage in this situation? (Ignore tax effects.)FindFind*launch*

14th Edition

Madura

Publisher: Cengage

ISBN: 9780357130698

Chapter 7, Problem 18QA

Textbook Problem

Limitations of Covered Interest Arbitrage Assume that the one-year U.S. interest rate is 11 percent, whereas the one-year interest rate in Malaysia is 40 percent. Assume that a U.S. bank is willing to purchase the currency of that country from you one year from now at a discount of 13 percent. Would covered interest arbitrage be worth considering? Is there any reason why you should not attempt to engage in covered interest arbitrage in this situation? (Ignore tax effects.)

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