Assume the Following Information Given the Information in This Question, the Return from Covered

question 11

Multiple Choice

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

• 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:

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A warranty that provides coverage with certain conditions and limitations on the duration and scope.

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