You have the following financial market information. You also have 1.13 million Australian dollar (A$) or 3.70 million Thai baht (THB) to make a profit due to covered interest arbitrage (CIA). Calculate the profit in A$ or THB if the CIA opportunity exists in the market. 

 

	Bid price	Ask price
THB spot rate	A$0.0414	A$0.0696
THB one-year forward rate	A$0.0466	A$0.0677
A$ spot rate	THB22.6912	THB24.1685
A$ one-year forward rate	THB27.2397	THB29.9632
	Deposit rate	Loan rate
Interest rate on A$	2.96%	4.99%
Interest rate on THB	6.73%	8.56%

Answer rating: 100% (QA)

To determine if a covered interest arbitrage CIA opportunity exists we need to compare the implied forward exchange rate calculated using interest rat... View the full answer