Question: (i) Identity whether the covered interest arbitrage exists from the above position. (2 marks) (a) Assume that you may borrow or invest up to AUD1,000,000.

(i) Identity whether the covered interest arbitrage exists from the above

(i) Identity whether the covered interest arbitrage exists from the above position. (2 marks)

(a) Assume that you may borrow or invest up to AUD1,000,000. Currently, the spot exchange rate is AUD1.4500/1.4520/USD and the four-months forward exchange rate is AUD1.4661/1.4668/USD. One-year interest is 4.2% in the United States and 3.5% in Australia

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