You have $10,000 to invest for 90 days. Current spot rate: $1.32/£. The 90-day forward rate is $1.38/£. 90-day interest rate in US is 1.5% and 90-day interest rate in UK is 2.5%. Do we have an arbitrage opportunity? How much can you make?
You have $10,000 to invest for 90 days. Current spot rate: $1.32/£. The 90-day forward rate is $1.38/£. 90-day interest rate in US is 1.5% and 90-day interest rate in UK is 2.5%. Do we have an arbitrage opportunity? How much can you make?
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN:9780078747663
Author:McGraw-Hill
Publisher:McGraw-Hill
Chapter6: Saving And Investing
Section6.1: Why Save?
Problem 6R
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![You have $10,000 to invest for 90 days. Current spot rate: $1.32/£. The 90-day forward rate is $1.38/£. 90-day interest rate
in US is 1.5% and 90-day interest rate in UK is 2.5%. Do we have an arbitrage opportunity? How much can you make?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ed74fbf-96ac-47fe-849c-851c68cad16a%2F66b88055-0ac9-495c-bf86-79b02f2cf2f2%2Fy717oxa_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You have $10,000 to invest for 90 days. Current spot rate: $1.32/£. The 90-day forward rate is $1.38/£. 90-day interest rate
in US is 1.5% and 90-day interest rate in UK is 2.5%. Do we have an arbitrage opportunity? How much can you make?
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