Assume that spot rate of New Zealand dollar is AUD 0.64/NZD, the 1-year forward rate of New Zealand dollar is AUD 0.62/NZD, 1-year interest rate on NZD is 9% and 1-year interest rate on AUD is 6%. If there is a possible arbitrage opportunity, the appropriate arbitrage strategy should be arbitrage; and the rate of return from covered interest arbitrage would be Select one: O a. Inward; 0.38 b. Outward; 9.42 c. Inward; 9.42 Od. Outward; 0.38

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Assume that spot rate of New Zealand dollar is AUD 0.64/NZD, the 1-year
forward rate of New Zealand dollar is AUD 0.62/NZD, 1-year interest rate on NZD
is 9% and 1-year interest rate on AUD is 6%. If there is a possible arbitrage
opportunity, the appropriate arbitrage strategy should be
and the rate of return from covered interest arbitrage would be
arbitrage;
%.
Select one:
a. Inward; 0.38
b. Outward; 9.42
c. Inward; 9.42
d. Outward; 0.38
Transcribed Image Text:Assume that spot rate of New Zealand dollar is AUD 0.64/NZD, the 1-year forward rate of New Zealand dollar is AUD 0.62/NZD, 1-year interest rate on NZD is 9% and 1-year interest rate on AUD is 6%. If there is a possible arbitrage opportunity, the appropriate arbitrage strategy should be and the rate of return from covered interest arbitrage would be arbitrage; %. Select one: a. Inward; 0.38 b. Outward; 9.42 c. Inward; 9.42 d. Outward; 0.38
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