Assume the current spot rate is C$1.0210 and the 1-year forward rate is C$1.0140.The nominal risk-free rate in Canada is 5.9 percent while it is 4.2 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.for one year.

Question

Quizplus · Accepted Answer

Profit = [$1 × (C$1.0210/$1)× 1.059 × ($1/C$1.0140)] - ($1 × 1.042)= $.0243

Assume the Current Spot Rate Is C$1