Covered Interest Arbitrage in Both Directions The following information is available:
¦ You have $500,000 to invest.
¦ The current spot rate of the Moroccan dirham is $.110.
¦ The 60-day forward rate of the Moroccan dirham is $.108.
¦ The 60-day interest rate in the United States is 1 percent.
¦ The 60-day interest rate in Morocco is 2 percent.
a. What is the yield to a U.S. investor who conducts covered interest arbitrage? Did covered interest arbitrage work for the investor in this case?
b. Would covered interest arbitrage be possible for a Moroccan investor in this case?
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