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What would be the yield to a us investor

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Reference no: EM133081218

Question - Assume the following information:

Spot rate of Mexican peso $0.100

180-day forward rate of Mexican peso $0.098

180-day Mexican interest rate 6%

180-day U.S. interest rate 5%

Required -

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: EM133081218

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