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Compute the return from covered interest arbitrage

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Reference no: EM132652112

Assume the following information:

Current spot rate of New Zealand dollar = $.41

Forecasted spot rate of New Zealand dollar 1 year from now = $.43

One year forward rate of the New Zealand dollar = $.42

Annual interest rate on New Zealand dollars = 8%

Annual interest rate on U.S. dollars = 9%

Compute the return from covered interest arbitrage by a U.S. investor with $500,000 to invest.

Reference no: EM132652112

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