Covered Interest Arbitrage Illustration 11


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Covered Interest Arbitrage Illustration 11

 

Given:

Spot                                : 1 USD = SEK 5.8025

3 months forward          : 1 USD = SEK 5.8975

USD interest rate           : 4.20% p.a.

SEK interest rate            : 6.00% p.a.

Identify and calculate interest rate arbitrage.                                                    (Oct. 2009)

(Ans.: Borrow Home and Gain SEK 12,044 on 1 million SEK)


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