Assume the following information:
From the perspective of U.S. investors with $1,000,000, covered interest arbitrage would yield a rate of return of ____ percent.

A)5.00
B)12.35
C)15.50
D)14.13
E)11.22

Question

Assume the following information​:
From the perspective of U.S. investors with $1,000,000, covered interest arbitrage would yield a rate of return of ____ percent.
​ 
A)5.00 
B)12.35 
C)15.50 
D)14.13 
E)11.22

Quizplus · Accepted Answer

Without knowing the details and assumptions of the covered interest arbitrage calculation, we cannot determine the exact rate of return. However, based on the options given, B (12.35%) is the closest to the typical range of returns for covered interest arbitrage strategies. This involves borrowing in a low-interest rate currency, converting the funds into a higher interest rate currency, and using forward contracts to hedge against currency risk. The difference between the interest rates, minus any hedging costs, is the expected rate of return.

Assume the Following Information​

Assume the Following Information