> Example: Suppose you are given the following information: annual interest rate on 3-month UK-pound asset,...
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> Example: Suppose you are given the following information: annual interest rate on 3-month UK-pound asset, UK= 6% pa annual interest rate on 3-month US-dollar asset, ius= 5% pa spot exchange rate S(USD/pound) = USD1.50 3-month forward exchange rate F(1/4) (USD/pound) =USD1.4985 Are there any interest arbitrage opportunities? If so determine: (a) in which asset you would invest (b) in which currency you would borrow > (c) your interest arbitrage profit per US dollar. > Example: Suppose you are given the following information: annual interest rate on 3-month UK-pound asset, UK= 6% pa annual interest rate on 3-month US-dollar asset, ius= 5% pa spot exchange rate S(USD/pound) = USD1.50 3-month forward exchange rate F(1/4) (USD/pound) =USD1.4985 Are there any interest arbitrage opportunities? If so determine: (a) in which asset you would invest (b) in which currency you would borrow > (c) your interest arbitrage profit per US dollar.
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