Suppose that the rate on 3-month treasury bills is on a, Ask an Expert

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Suppose that the rate on 3-month treasury bills is (on a yearly basis) 10% in London and 6% in New York and the spot rate of the pound is $2.00.

a. How can a US investor undertake uncovered interest arbitrage?

b. What happens if the spot rate of the pound in 3 months is $1.99? 1.98? 1.96?

c. How can the US investor undertake covered interest arbitrage if the pound is at a 3-month forward discount of 1% (per year)? How would the US investor earn on his foreign investment?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92747656

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