In: Finance
Please show how answer is derived. Assume the information below to answer the following questions:
(1) If you use covered interest arbitrage for a 90-day investment, what will be the amount of US dollars you will have after 90 days? |
(2) What is the percentage gain or loss on an annual basis? |
Amount of investment | $5,000,000 |
Current spot rate of pound | 1.28 |
90-day forward rate of pound | 1.25 |
3-month deposit rate in US | 2% |
3-month deposit rate in UK |
3% |