Covered Interest Arbitrage Illustration 9


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Covered Interest Arbitrage Illustration 9

USD 1 = INR 42.4210 (Spot rate)

6 month forward rate 43.2300

Annualized interest rate on INR                        12%

Annualized interest rate on USD                       8%

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

(Ans.: Borrow Foreign and Gain USD 163 on 1 million USD)

 


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