Covered interest arbitrage

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Bonus Question: Covered Interest Arbitrage. Assume the following information: Quoted Price Spot rate of Canadian dollar $.80 90-day forward rate of Canadian dollar $.79 90-day Canadian interest rate 4% 90-day U.S. interest rate 2.5% 1- Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) 2- What market forces would occur to eliminate any further possibilities of covered interest arbitrage?

Reference no: EM13877872

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