Assume the current spot rate is Can$1.0267 and the 1-year forward rate is C$1.0259.The nominal risk-free rate in Canada is 2.5 percent while it is 2.1 percent in the United States.If you use covered interest arbitrage,how much extra profit can you earn over that which you would earn if you invested $1,000 in the United States for 1 year?

Question

Quizplus · Accepted Answer

Profit = [$1,000(Can$1.0267 / $1)(1.025)($1 / Can$1.0259)] − ($1,000 × 1.021)= $4.80

Assume the Current Spot Rate Is Can$1