The spot rate between the U.K. and the U.S. is £.7614/$, while the one-year forward rate...

Question

Question

business finance

Answer 1

Answer #1

Borrow 11000 dollars
Convert to pounds=11000*0.764
Invest pounds in UK
Convert accumulated amount to dollars 1 year later

Profit=11000*0.7614*(1+4.59%)/0.754-11000*(1+2.74%)
=316.4128

Answer 2

Similar Homework Help Questions

The spot rate between the U.K. and the U.S. is £.7614/$, while the one-year forward rate...

The spot rate between the U.K. and the U.S. is £.7614/$, while the one-year forward rate is £.7540/$. The risk-free rate in the U.K. is 4.59 percent and risk-free rate in the United States is 2.74 percent. How much in profit can you earn on $11,000 utilizing covered interest arbitrage? a.$316.41 b.$276.86 c.$103.15 d.$253.13 e.$91.68
The spot rate between Canada and the U.S. is Can$1.2398/$, while the one-year forward rate is...

The spot rate between Canada and the U.S. is Can$1.2398/$, while the one-year forward rate is Can$1.2397/$. The risk-free rate in Canada is 4.31 percent and risk-free rate in the United States is 2.60 percent. How much in profit can you earn on $6,500 utilizing covered interest arbitrage?
Assume the spot rate for the British pound is currently 15604 while the year forward rate...

Assume the spot rate for the British pound is currently 15604 while the year forward rate is €15587. A risk tree asset in the United States is currently earning 26 percent of interest rate party holds, approximately what can you earn on a 1-year tree British security Ο Ο Ο Ο Ο Multiple Choice o 228% 228x o 223 223% o 246% лек o О 249% o О 23%

Suppose spot rate is $/£ = $1.25/£ and the 1-year forward rate is F1$/£ = $1.20/£....

Suppose spot rate is $/£ = $1.25/£ and the 1-year forward rate is F1$/£ = $1.20/£. The real interest rate on a risk-free government security is 2 percent in both the United Kingdom and the United States. The U.S. inﬂation rate is 5 percent. a. What is the U.K.’s inﬂation rate if the equilibrium relationships hold b.What is the U.K's nominal required return on risk-free government securities?
Assume the current spot rate is CAD1.3240 and the 1-year forward rate is CAD1.3215. The nominal...

Assume the current spot rate is CAD1.3240 and the 1-year forward rate is CAD1.3215. The nominal risk-free rate in Canada is 2.25 percent while it is 2.1 percent in the U.S. Using covered interest arbitrage you can earn an extra profit over that which you would earn if you Finvested $1 in the U.S. for one year. C $0.0010 C $0.0016 $0.0022 $0.0028 $0.0034
The one-year interest rate in the U.K. is 5.0 percent. The spot exchange rate is $1.40/£...

The one-year interest rate in the U.K. is 5.0 percent. The spot exchange rate is $1.40/£ and the one-year forward exchange rate is $1.35/£. Assuming interest rate parity, the one-year U.S. interest rate is: Multiple Choice • None of the options. 0 0 0 0

The spot rate between the Japanese yen and the U.S. dollar is ¥106.57/$, while the one-year...

The spot rate between the Japanese yen and the U.S. dollar is ¥106.57/$, while the one-year forward rate is ¥105.73/$. The one-year risk-free rate in the U.S. is 2.39 percent. If interest rate parity exists, what is the one-year risk-free rate in Japan?
The U.S. interest rate is 4.0% per annum. The U.K. interest rate is 7.0% per annum....

The U.S. interest rate is 4.0% per annum. The U.K. interest rate is 7.0% per annum. S($/£) = $1.2; F($/£) = $1.26. How much can an investor earn with a $1,000,000 covered interest arbitrage? Multiple Choice $83,500 $61,800 $216,960 $100,200 None of the options.
3. Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£....

3. Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0 percent per annum in the U.S. and 5.8 percent per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. a. Determine whether interest rate parity is currently holding. b. If IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. c....

The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate...

The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate is ¥105 per $1. A risk-free asset in Japan is currently earning 5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security? 74. The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate is $105 per $1. A risk-free asset in Japan is currently earning 5 percent. If interest...