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Compute the return on investment

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Reference no: EM132842681

Given the following:

US 90-day interest rate                                    4.25%

Canadian 90-day interest rate                            6.95%

Current spot rate                                              US $0.7612/C $

90-day forward rate                                          US $0.7782/C $

If you have $1 million and would like to engage in covered interest arbitrage (CIA).

i) Outline the steps for CIA with the appropriate computation thereof and compute the profit.

ii) Compute the return on investment of $1 million and identify its components.

iii) For Interest rate Parity to prevail, what should be the forward rate?

Reference no: EM132842681

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