You have $1,800,000 to invest, and have access to the following information: ...
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You have $1,800,000 to invest, and have access to the following information:
| Current spot rate of pound | = | $1.30 |
| 90-day forward rate of pound | = | $1.28 |
| Annual interest rate in United States | = | 3% |
| Annual interest rate in Great Britain | = | 4% |
Considering what has been discussed in class, and using the most precise version of IRP, demonstrate whether covered interest arbitrage is possible for a 90-day investment. If so, what will be the amount of U.S. dollars you will have after 90 days? Explain all steps in detail while showing computations.
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