Problem:
Covered Interest for New Zealand (NZs) and US dollars.
The one-year interest rate in New Zealand is 6%.
The one-year interest rate in US is 10%
The spot rate of the New Zealand dollar (NZs) is $.50
The forward rate of the New Zealand dollar is $.54
Is covered interest arbitrage feasible for US investors?
In each case, please explain why covered interest arbitrage is or is not feasible?
Is it feasible for NZ investors?