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Percentage return from covered interest arbitrage

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Reference no: EM132577871

Assume the following information:

Current spot rate of Australian dollar=$.86

Forecasted spot rate of Australian dollar 1 year from now=$.88

1-year forward rate of Australian dollar=$.93

Annual interest rate for Australian dollar deposit=4%

Annual interest rate in the U.S.=2%

What is your percentage return from covered interest arbitrage with $550,000 for one year?

Reference no: EM132577871

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