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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Covered Interest Arbitrage Assume the following information:
â– British pound spot rate = $1.58
â– British pound one-year forward rate = $1.58
â– British one-year interest rate = 11 percent
â– U.S. one-year interest rate = 9 percent
Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 9 percent. What would be their yield? Explain how the spot and forward rates of the pound would change as covered interest arbitrage occurs.
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