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Cover interest arbitrage

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Reference no: EM132951567

You work as a trader for ANZ Bank, you see the following price from two different bank:

One-year forward rate (AUD/GBP) 2.6450 - 2.6550

Spot rate (AUD/GBP) 2.7450 - 2.7550

One-year AUD interest rate 7.75% - 8.25%

One-year GBP interest rate 3.75% - 4.25%

The interest rate is quoted on a 360-day year. You can borrow GBP1000 or AUD1000. Can you do a cover interest arbitrage (CIA)?

[Show both profit and losses]

Reference no: EM132951567

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