You find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot rate for Canadian dollar is $0.95 per CAD, the 90-day Canadian dollar forward rate is $0.948 per CAD. Calculate the covered interest arbitrage profit assuming you can
You find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot rate for Canadian dollar is $0.95 per CAD, the 90-day Canadian dollar forward rate is $0.948 per CAD. Calculate the covered interest arbitrage profit assuming you can
Chapter20: Short-term Financing
Section: Chapter Questions
Problem 4ST
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You find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot rate for Canadian dollar is $0.95 per CAD, the 90-day Canadian dollar forward rate is $0.948 per CAD. Calculate the covered interest arbitrage profit assuming you can borrow up to $1 million U.S. dollars (or equivalent value of Canadian dollars).
A. $3569 USD profit.
B. None is correct.
C. $2868 USD profit.
D. $4672 USD profit.
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