Assume the following information: You have $1,000,000 to invest:
Current spot rate of pound
=
$1)60
90-day forward rate of pound
=
$1)57
3-month deposit rate in U.S.
=
3%
3-month deposit rate in U.K.
=
4%

If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?
A) $1,020,500
B) $1,045,600
C) $1,073,330
D) $1,094,230
E) $1,116,250

Question

Assume the following information:​ You have $1,000,000 to invest:
Current spot rate of pound
=
$1)60
90-day forward rate of pound
=
$1)57
3-month deposit rate in U.S.
=
3%
3-month deposit rate in U.K.
=
4%
​
If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?
A) ​$1,020,500
B) ​$1,045,600
C) ​$1,073,330
D) ​$1,094,230
E) ​$1,116,250

Quizplus · Accepted Answer

The correct answer is A because the amount of U.S. dollars after 90 days is $1,020,500. This is calculated by taking the $1,000,000 investment and multiplying it by the 90-day forward rate of $1.57.

Assume the Following Information:​ You Have $1,000,000 to Invest

Assume the Following Information: You Have $1,000,000 to Invest