Suppose the interest rate (on an annual basis) on three-month Treasury bills is ten percent in London
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Suppose the interest rate (on an annual basis) on three-month Treasury bills is ten percent in London and six 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?
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a The US investor would purchase pounds on the spot marke...View the full answer
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