Question: Calculate the % return from covered interest arbitrage by US investors with US$1,000,000 to invest based on following assumptions: Spot rate of = $1.11 Future

  1. Calculate the % return from covered interest arbitrage by US investors with US$1,000,000 to invest based on following assumptions:

Spot rate of = $1.11

Future spot rate of =$1.08

1-year forward rate of =$1.15

Annual interest rate in Europe= 2%

Annual interest rate in the US= 0.5%

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