What does that mean? Any formula??作者: lunarfollies 时间: 2013-3-31 13:11
Covered Interest Rate differential means the difference between the domestic interest rate and the hedge foreign rate. It should be zero otherwise arbitrage opportunities exist.
1+rdc = ((1+rfc)(Forward Rate))/ spot rate作者: pawn 时间: 2013-3-31 13:11
he nailed it. If its different, arb exists and you should borrow the cheaper, lend the expensive.作者: king_kong 时间: 2013-3-31 13:11
Do you know how to calculate the arbitrage profit. I am referring to Q120 in Schweser 2nd exam pm section.
Thanks作者: liquidity 时间: 2013-3-31 13:11
1000 $ = 500 BU at Spot
1000 * 1.05 = 1050 $ needs to be repaid.
500 BU - 515 BU at forward - 1081.5 $ at forward.
so 31.5 profit.
