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How can us investor profit from uncovered interest arbitrage

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Reference no: EM133069750

Suppose the interest rate (on an annual basis) on three-month Treasury bills is 10 percent in London and 6 percent in New York, and the spot rate of the pound is $2.

a. How can a U.S. investor profit from uncovered interest arbitrage?

b. If the price of the three-month forward pound is $1.99, will a U.S. investor benefit from covered interest arbitrage? If so, by how much?

Reference no: EM133069750

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