Solved: Making to earn risk-free covered interest arbitrage profits, Finance Basics

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Making to earn risk-free covered interest arbitrage profits

Assume that the Citibank trading room is dealing on the following quotations.

Spot Sterling=$1.5000
Euro-Sterling interest rate (6 months) = 11 percent p.a
Euro-$ interest rate (6 months)= 6 percent p.a

Also assume that Barclays is quoting forward sterling (6 months) at $1.4550

Q1. Describe the transactions you would make to earn a risk-free covered interest arbitrage profits.

Q2. How much profit would you expect to make?

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Finance Basics: Making to earn risk-free covered interest arbitrage profits

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