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Suppose the British short-term interest rate is 13 percent and the corresponding U.S. rate is 8 percent.

Suppose at the same time that the discount on forward pounds is 3 percent per year.

Do these conditions present an opportunity for covered interest arbitrage?

If so, what steps should a trader in New York take? What annual rate will the trader earn?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92088419

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