At present, the dollar is trading against the British pound at spot GBP/USD = 1.1517, and at one-year (365-day) forward at 64 forward points. One-year (360- day) eurodollar deposits for the U.S. dollar is 5.39%, while half-year (180-day) eurosterling is 4.11%. Using the covered interest parity condition.

Determine if: (a) there is an arbitrage opportunity (hint: be sure to pay attention to the difference between the tenor of the forward versus that of deposits).

Answer rating: 100% (QA)

To determine if there is an arbitrage opportunity using the covered interest parity condition we nee... View the full answer