Covered Interest Arbitrage Illustration 10


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Covered Interest Arbitrage Illustration 10

 

USD 1 = EUR 0.7315 (Spot Rate)

3 months forward rate 0.7370

Annualized interest rate on EUR                       7%

Annualized interest rate on USD                       9%

Find if arbitrage gain is possible and calculate the gain for 1 million.               (Oct. 2011)

(Ans.: Borrow Home and Gain EUR 12,688 on 1 million EUR)


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