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Essay text:
Therefore, triangular arbitrage is not feasible in this situation.
2. Covered Interest Arbitrage:
British pound:
Spot rate: ? = $1.596
Forward rate: ? = $1.58004
U.S interest rate: iU.S. = 8.00%
British interest rate: iBritish =9.09%
(F-S)/S = ($1.58004-$1.596)/ $1.596 = -1%
ih ? if = 8%-9.09% = -1%
We get: (F-S)/S = ih ? if
Covered interest arbitrage capitalizes on discrepancies between the forward rate and the interest rate differential.
(F-S)/S = ih ? if, therefore, covered interest arbitrage is not feasible on British pound.
Australian dollars:
Spot rate: A$ = $0.70
Forward rate: A$ = $0...
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