Determine the profit from covered interest arbitrage


Profit from Covered Interest Arbitrage

Response to the following problem:

Today, the 1-year U.S. interest rate is 4 percent, while the 1-year interest rate in Argentina is 17 percent. The spot rate of the Argentine peso (AP) is $.44. The 1-year forward rate of the AP exhibits a 14 percent discount.

Determine the yield (percentage return on investment) to an investor from Argentina who engages in covered interest arbitrage.

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Financial Accounting: Determine the profit from covered interest arbitrage
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