Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1925.The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S.Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

Question

Quizplus · Accepted Answer

Arbitrage profit = [$1 × (C$1.2103/$1) × 1.03 × ($1/C$1.1925)] - ($1 × 1.04) = $0.005

Assume the Current Spot Rate Is C$1