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Opportunity for covered interest arbitrage

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Reference no: EM132859124

1. If you see a three-month swap quote for euro at a bank's website as $1.1650-70 30-50, what is the outright three-month forward rate C$?

2. (a) If interest rates in the U.S. and Canada are 5% and 6% respectively and the spot rate for dollar is C$1.2850, what is the 180-day equilibrium forward rate for US$? What is the forward premium/discount on US$?

(b) If the quoted (actual) forward rate for US$ is C$1.2950, is there an opportunity for covered interest arbitrage?

3. The treasurer of a Canadian company has C$1,000,000 to invest for 90 days. A 90-day U.S. commercial paper offers a yield of 2.00 percent. The present exchange rate of C$ is $0.8980. If the Canadian company decided to invest in U.S. commercial paper, what is the expected (annual) yield if the expected exchange rate of CS at the end of 90 days is $0.8890? (You will find an illustrative example for this type questions in the course content folder)

Reference no: EM132859124

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