Assume the following information:
Quoted Price 

Spot rate of Singapore dollar 
$.75 
90?day forward rate of Singapore dollar 
$.74 
90?day Singapore interest rate 
4.5% 
90?day U.S. interest rate 
2.5% 
Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.)
What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
the U.S investor if uses the covered interest arbitrage ,
the $1,000,000 when ocnverted at the spot rate would give us 1333333 singapore dollars. this amount when invested in singapore will provide us with 1333333(1.045) = 1393333 singapore dollars .
now when we convert this amount at the forward rate into US $ we get,
1393333*0.74 = $1031066
so the yield is 1031066  1,000,000/1,000,000 = 3.10%
which is greater than the yiled enjoyed by the investor if he had invested all his money in the U.S.then he would get a yield of 2.5%
the market factors that would eliminate the possibilities of covered interest arbitrage is :
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