Arbitrage profit possible under covered interest rate parity

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Reference no: EM131984117

1. Assume that the annualized interest rates are 3% in U.S. and 8% in Brazil. Is arbitrage profit possible under covered Interest Rate Parity? Why?

2. If the two interest rates are as shown in problem 6 and the spot rate is $0.5555 per real as shown in problem 5, what should be the six-month forward rate so that there is no arbitrage profit possible?

3. Non-deliverable forwards: The spot rate for Argentina peso is P2.75/$ and the six-month forward rate is P2.90 /$. The actual rate settles six months later at P2.85/$. If you entered a six month non-deliverable forward contract today to buy P29 million, what is your gain or loss 6 months later?

Reference no: EM131984117

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