Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724.The nominal risk-free rate in Canada is 4 percent while it is 3 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$1.1875/$1) × 1.04 × ($1/C$1.1724)] - ($1 × 1.03) = $0.023

Assume the Current Spot Rate Is C$1