Assume the Following Information: Current Spot Rate of New Zealand

question 42

Multiple Choice

Assume the following information: Current spot rate of New Zealand dollar
=
$) 41
Forecasted spot rate of New Zealand dollar 1 year from now
=
$) 43
One-year forward rate of the New Zealand dollar
=
$) 42
Annual interest rate on New Zealand dollars
=
8%
Annual interest rate on U.S. dollars
=
9%
​
Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____ percent.

• A) about 11.97
• B) about 9.63
• C) about 11.12
• D) about 11.64
• E) about 10.63

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Definitions:

Sarbanes-Oxley

The Sarbanes-Oxley Act is a U.S. federal law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to securities laws, and to prevent corporate and accounting fraud.

U.S. Exchanges

Marketplaces in the United States where securities, options, and futures are traded.

Conceptual Framework

An organized system of objectives and fundamentals that can lead to consistent standards in accounting and guides the selection of transactions to be accounted for.

IFRS

International Financial Reporting Standards, a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.