Let's suppose you have $1 million to invest. You are considering to invest in UK first, then convert the British Pound back to US$ in the future. You know following information: Annual Interest rate on investment in US: 2% Annual Interest rate on investment in UK: 4% Investment period: 1 year Current exchange rate: 1.48 $/BP Forward exchange rate which you can apply when converting BP to US$: 1.47 $/BP What would be profit if you apply the covered-interest arbitrage? Group of answer choices None of the above About $48,382
Let's suppose you have $1 million to invest. You are considering to invest in UK first, then convert the British Pound back to US$ in the future. You know following information: Annual Interest rate on investment in US: 2% Annual Interest rate on investment in UK: 4% Investment period: 1 year Current exchange rate: 1.48 $/BP Forward exchange rate which you can apply when converting BP to US$: 1.47 $/BP What would be profit if you apply the covered-interest arbitrage? Group of answer choices None of the above About $48,382
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter6: Managing In The Global Economy
Section: Chapter Questions
Problem 12E
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Question
Let's suppose you have $1 million to invest.
You are considering to invest in UK first, then convert the British Pound back to US$ in the future.
You know following information:
Annual Interest rate on investment in US: 2%
Annual Interest rate on investment in UK: 4%
Investment period: 1 year
Current exchange rate: 1.48 $/BP
Forward exchange rate which you can apply when converting BP to US$: 1.47 $/BP
What would be profit if you apply the covered-interest arbitrage?
Group of answer choices
None of the above
About $48,382
About $40,542
About $24,254
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