The 1-year Interest Rates in Norway, ππππΎ, is Equal to 3%
February 8, 2021
Answer for The 1-year interest rates in Norway, ππππΎ, is equal to 3% in $2 Only (Instant Download)

The 1-year interest rates in Norway, ππππΎ, is equal to 3%; – The 1-year interest rates in the US, πππ is equal to 1%; – Spot exchange rate is equal to π ( πππΎ πππ·) = πππΎ πππ· 8; – The 1-year forward rate is πΉ ( πππΎ πππ·) = πππΎ πππ· 8.5
Observing the data, you discovered an arbitrage opportunity. Show how to realize a certain profit via covered interest arbitrage. Assume that you can borrow either USD 1,000,000 or NOK 1,000,000 for one year. (Hint: In order to perform a covered interest arbitrage, you borrow in one country and you invest in the other. Thus, you need to decide in which country you borrow, then invest in the other.)
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