None Reprinted from 3a (above)Spot rate of British Pound= $1.57180-Day forward rate of British Pound= $1.53British interest rate (Annual)= = 5.0%U.S. Interest Rate (Annual)= 4.4%If 3a is true, calculate your PROFIT if you exercise covered interestarbitrage given you can borrow either $1 million (USD) or 1 millionBritish pounds.1,025,000 PoundsThere was no CIA opportunity in Question 8aCIA in this problem produces a loss1,048,718.95 Pounds23,718.95 Pounds23,718.95 USD

Arbitrage is the risk free profit which can be obtained by buying one currency and selling another…

Answered: eprinted from 3a (above) pot rate of…

eprinted from 3a (above) pot rate of British Pound = $1.57 80-Day forward rate of British Pound = $1.53 ritish interest rate (Annual) = 5.0%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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None

Reprinted from 3a (above)
Spot rate of British Pound
= $1.57
180-Day forward rate of British Pound
= $1.53
British interest rate (Annual)
= = 5.0%
U.S. Interest Rate (Annual)
= 4.4%
If 3a is true, calculate your PROFIT if you exercise covered interest
arbitrage given you can borrow either $1 million (USD) or 1 million
British pounds.
1,025,000 Pounds
There was no CIA opportunity in Question 8a
CIA in this problem produces a loss
1,048,718.95 Pounds
23,718.95 Pounds
23,718.95 USD

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