Given the following: US 90-day interest rate Canadian 90-day interest rate Current spot rate 90-day forward...

 

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Given the following: US 90-day interest rate Canadian 90-day interest rate Current spot rate 90-day forward rate 4.25% 6.95% US $0.7612/C $ US $0.7782/C $ If you have $1 million and would like to engage in covered interest arbitrage (CIA). i) Outline the steps for CIA with the appropriate computation thereof and compute the profit. ii) Compute the return on investment of $1 million and identify its components. iii) For Interest rate Parity to prevail, what should be the forward rate? Given the following: US 90-day interest rate Canadian 90-day interest rate Current spot rate 90-day forward rate 4.25% 6.95% US $0.7612/C $ US $0.7782/C $ If you have $1 million and would like to engage in covered interest arbitrage (CIA). i) Outline the steps for CIA with the appropriate computation thereof and compute the profit. ii) Compute the return on investment of $1 million and identify its components. iii) For Interest rate Parity to prevail, what should be the forward rate?

Answer rating: 100% (QA)

Answer To engage in covered interest arbitrage CIA using the given information here are the steps an... View the full answer