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Did covered interest arbitrage work of the investor in case

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Reference no: EM132861495

An U.S. investor has $1,000,000 to invest (note: the investor use own money, not borrowed funds):

Current spot rate of pound = $1.4172

90-day forward rate of pound = $1.4155

3-month deposit rate in U.S. = 3%

3-month deposit rate in U.K. = 4%

Question 1: What is the yield to the U.S. investor who conducts covered interest arbitrage? Make sure you show your works step by step and explain your calculations. Did covered interest arbitrage work of the investor in this case? Would covered interest arbitrage be possible for a UK investor in this case?

Reference no: EM132861495

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