Calculate the covered margins and what would arbitrageurs, Financial Accounting

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Calculate the covered margins and what would arbitrageurs

You have the following information:

- Spot exchange rate S(^HKD/_EUR) 10.6950-10.7050
- One-year forward rate S(^HKD/_EUR) 10.9150-10.9250
- Hong Kong one-year interest rates 5.275-5.775
- Euro one-year interest rates 2.255-2.375.

a) Calculate the covered margins.

b) Is there a violation of CIP?

c) What would arbitrageurs do given the above information (i.e., explain the process that would be followed by arbitrageurs and its results)?

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Financial Accounting: Calculate the covered margins and what would arbitrageurs

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Financial Accounting: Calculate the covered margins and what would arbitrageurs

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