Let's suppose you have $1 million to invest. You are considering to invest in UK...
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Let's suppose you have $1 million to invest. You are considering to invest in UK first, then convert the British Pound back to US$ in the future. You know following information: Annual Interest rate on investment in US: 2% Annual Interest rate on investment in UK: 4% Investment period: 1 year Current exchange rate: 1.52 $/BP Forward exchange rate which you can apply when converting BP to US$: 1.50 $/BP What will be profit or loss if you apply the covered-interest arbitrage? Profit, about $36,838 Profit, about $28,424 Profit, about $16,645 Profit, about $26,315
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