6 Covered Interest Arbitrage Assume the fol- vered owing information: Spot rate of Canadian dollar 90-day forward rate of Canadian dollar 90-day Canadian interest rate 90-day U.S. interest rate $.80 $.79 4% 2,5% Given this information, what would be the yield (per- centage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1 million.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage?

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