Question: (b) Explain the term currency arbitrage and state its benefits. (6 marks) (c) Bina kasih Berhad is given the following quotes: (4 marks) Spot rate

(b) Explain the term "currency arbitrage" and state its benefits. (6 marks)

(c) Bina kasih Berhad is given the following quotes: (4 marks) Spot rate USD0.7250/NZD Six-month forward rate USD0.7350/NZD Interest rate United States 7 percent per annum Interest rate New Zealand 6 percent per annum

Assume that Bina Kasih Berhad can borrow as much as USD1 million or NZD5 million for its coming project. If Interest Rate Parity (IRP) is not holding, determine how would Bina Kasih Berhad carry out covered interest arbitrage (CIA) opportunity and compute the profit. (9 marks)

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