Suppose that the interest rate on the 6 months Treasury bill is 10% in Lusaka and 12% New york and the spot rate is K18.66/$.
(a) How can a Zambian investor undertake uncovered interest arbitrage
(b) ) How can the Zambian investor who has K500, 000 undertake covered interest arbitrage if the dollar is at three month forward premium of 1% (per year)? How much would the Zambian investor earn on his foreign investment?

Answer rating: 100% (QA)

A Zambian investor can borrow money from Lusaka at 10 and invest it ... View the full answer