Covered Interest Arbitrage Illustration 3


Given the following data:

Spot Rate: US$ 0.7890 = CAD {Canadian Dollar}

6 months forward rate      US$ 0.7850 = CAD

Annualized interest rate on 6 months US$: 2.11 per cent

Annualized interest rate on 6 months CAD: 2.64 per cent

Calculate arbitrage possibilities.

(Ans.: Borrow CAD, gain 2,499 CAD per million)

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