The interest on a risk free US treasury is 2.75%, while the interest on a risk free Lebanese security is 8% in Lebanese pounds. If the spot rate for the Lebanese against the dollar is e-Ibp1500/S while the forward exchange rate f=lbp1850'S 1. How can an arbitrageur make profit while covering his investment? Show your calculations.

The interest on a risk free US treasury is 2.75%, while the interest on a risk free Lebanese security is 8% in Lebanese pounds. If the spot rate for the Lebanese against the dollar is e-Ibp1500/S while the forward exchange rate f=lbp1850'S 1. How can an arbitrageur make profit while covering his investment? Show your calculations.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

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