Andrew has been an astute investor. He has set aside ksh 10 million to be invested in USA at a rate of 7%. The Kenya rates as specified by the Monetary Committee of central banks was 8%, 1% above the Central Bank Rate. He has further, entered into a forward contract with bank of India to sell foreign exchange at a forward rate of kes 112/$. The prevailing exchange rate between Kenya shillings and the USA Dollar was kes 110/1$ Compute Covered interest arbitrage or disarbitrage. Explain the cause of the results.

Andrew has been an astute investor. He has set aside ksh 10 million to be invested in USA at a rate of 7%. The Kenya rates as specified by the Monetary Committee of central banks was 8%, 1% above the Central Bank Rate. He has further, entered into a forward contract with bank of India to sell foreign exchange at a forward rate of kes 112/$. The prevailing exchange rate between Kenya shillings and the USA Dollar was kes 110/1$ Compute Covered interest arbitrage or disarbitrage. Explain the cause of the results.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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