Assume the following information:
You have $900,000 to invest:

If you conduct covered interest arbitrage, what is the dollar profit you will have realized aFter 180 days?
Current spot rate of Australian dollar (A$)=$.62
180-day forward rate of the Australian dollar=$.64
180-day interest rate in the United States=3.5%
180-day interest rate in Australia=3.0%
A)$56,903
B)$61,548
C)$27,000
D)$31,500

Question

Assume the following information:
You have $900,000 to invest:
​
If you conduct covered interest arbitrage, what is the dollar profit you will have realized aFter 180 days?
Current spot rate of Australian dollar (A$)=$.62
180-day forward rate of the Australian dollar=$.64
180-day interest rate in the United States=3.5%
180-day interest rate in Australia=3.0%
A)$56,903
B)$61,548
C)$27,000
D)$31,500

Quizplus · Accepted Answer

The correct answer is A because the dollar profit realized after 180 days of conducting covered interest arbitrage is $56,903.

Assume the Following Information