Covered interest arbitrageAs of November 1, 1999, the exchange rate between the Brazilian real and U. S. dollar is R$1. 95/$. The consensus forecast for the U. S. and Brazil inflation rates for the next 1-year period is 2. 6% and 20. 0%, respectively. What would you forecast the exchange rate to be at around November 1, 2000?
Originally posted 2018-07-10 21:53:17. Republished by Blog Post Promoter
Covered Interest ArbitrageCurrently, the spot exchange rate is $1. 50/£ and the three-month forward exchange rate is $1. 52/£. The interest rate is 8. 0% per year in the U. S. and 5. 8% per year in the U. K. Assume that you can borrow as much as $1,500,000 or £1,000,000. How would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit.
Covered Interest arbitrageSuppose that the one-year interest rate is 5. 0 percent in the United States, the spot exchange rate is $1. 20/€, and the one-year forward exchange rate is $1. 16/€. What must one-year interest rate be in the euro zone?