Assume the following information: Current spot rate of New Zealand dollar
=
$)41
Forecasted spot rate of New Zealand dollar 1 year from now
=
$)43
One-year forward rate of the New Zealand dollar
=
$)42
Annual interest rate on New Zealand dollars
=
8%
Annual interest rate on U.S. dollars
=
9%

Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____ percent.
A) about 11.97
B) about 9.63
C) about 11.12
D) about 11.64
E) about 10.63

Question

Assume the following information: Current spot rate of New Zealand dollar
=
$)41
Forecasted spot rate of New Zealand dollar 1 year from now
=
$)43
One-year forward rate of the New Zealand dollar
=
$)42
Annual interest rate on New Zealand dollars
=
8%
Annual interest rate on U.S. dollars
=
9%
​
Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____ percent.
A) about 11.97
B) about 9.63
C) about 11.12
D) about 11.64
E) about 10.63

Quizplus · Accepted Answer

The Answer of Assume the following information: Current spot rate of New Zealand dollar
=
$)41
Forecasted spot rate of New Zealand dollar 1 year from now
=
$)43
One-year forward rate of the New Zealand dollar
=
$)42
Annual interest rate on New Zealand dollars
=
8%
Annual interest rate on U.S. dollars
=
9%
​
Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____ percent.
A) about 11.97
B) about 9.63
C) about 11.12
D) about 11.64
E) about 10.63

Assume the Following Information: Current Spot Rate of New Zealand