Covered Interest Arbitrage Illustration 7


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Covered Interest Arbitrage Illustration 7

Given the following data:

Spot rate                                     42.0010 = $ 1

6 month forward rate                 . 42.8020 = $ 1

Annualized interest rate on 6 month rupee 12 percent

Annualized interest rate on 6 month dollar 8 percent

Calculate the arbitrage possibilities.                                                                   (Oct. 2004)

(Ans.: Borrow Foreign ($) and Invest Home (INR), Gain 164)

 


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