Assume the following information:
You have $1,000,000 to invest:
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?
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%
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:
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?
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%
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 initial investment of $1,000,000 and multiplying it by the 90-day forward rate of pound, which is $1.57.

Assume the Following Information:​

Assume the Following Information: