Covered Interest Arbitrage in Both Directions Assume that the existing U.S. 1-year interest rate is 10 percent and the Canadian 1-year interest rate is 11 percent. Also assume that interest rate parity exists. Should the forward rate of the Canadian dollar exhibit a discount or a premium? If U.S. investors attempt covered interest arbitrage, what will be their return? If Canadian investors attempt covered interest arbitrage, what will be their return?
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