Assume the Following Information If You Use Covered Interest Arbitrage for a 90-Day Investment

question 44

Multiple Choice

Assume the following information:
$$\begin{array}{l}\text { You have } \$ 1,000,000 \text { to invest: }\\\begin{array} { l l r } \text { Current spot rate of pound } & = & \$ 1.60 \\\text { 90-day forward rate of pound } & = & \$ 1.57 \\\text { 3-month deposit rate in U.S. } & = & 3 \% \\\text { 3-month deposit rate in U.K. } & = & 4 \%\end{array}\end{array}$$
If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?

• A) $1,020,500.
• B) $1,045,600.
• C) $1,073,330.
• D) $1,094,230.
• E) $1,116,250.

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