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Consider a hypothetical situation with the following information:

Spot Rate of Canadian dollar: $0.76

180-day forward rate of Canadian dollar: $0.85

180-day Canadian interest rate: 4%

180-day US interest rate: 4.5%

(1) Describe four actions for a US investor (or a Canadian investor) to take in order to carry out a covered interest arbitrage.

(2) Given the information above, compute the 180-day net yield to the investor who carries out a covered interest arbitrage.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92427852

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