Detailed explanation to international financial management

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Reference no: EM1356233

Detailed Explanation to International Financial Management

Covered Interest Arbitrage in Both Directions: The following information is available:

You have $500,000 to invest

The current spot rate of the Moroccan dirham is $.110.

The 60-day forward rate of the Moroccan dirham is $.108.

The 60-day interest rate in the U.S. is 1 percent.

The 60-day interest rate in Morocco is 2 percent.

a. What is the yield to a U.S. investor who conducts covered interest arbitrage? Did covered interest arbitrage work for the investor in this case?

b. Would covered interest arbitrage be possible for a Moroccan investor in this case?

Reference no: EM1356233

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