Question

Calculate the covered interest arbitrage profit opportunity from the bank's error in forecasting a forward rate compared to the correct IRP forward rate. SPOT =.77 Pds/$

USA national interest = 2.0% UK annual interest = 5.4%

0.785522 Pounds / $ is the correct IRP forward rate in the future at 216 days

0.785915 Pounds / $ is the forward rate offered by the bank also 216 days

(To implement CIA profit, first determine which currency to borrow, which to invest)

Once the correct currency to borrow is identified, the amount to borrow = 750,000

_____ enter the amount of CIA Profit under these conditions

Answer 1