Consider a hypothetical situation with the following information:
Spot Rate of Canadian dollar: $0.76
180-day forward rate of Canadian dollar: $0.85
180-day Canadian interest rate: 4%
180-day US interest rate: 4.5%
(1) Describe four actions for a US investor (or a Canadian investor) to take in order to carry out a covered interest arbitrage.
(2) Given the information above, compute the 180-day net yield to the investor who carries out a covered interest arbitrage.