Using the information in question 1, determine whether covered interest arbitrage is feasible and, if so, how it should be conducted to make a profit.
question 1 As an employee of the foreign exchange department for a large company, you have
been given the following information:
Beginning of Year
Spot rate of £ ¼ $1.
rate of Australian dollar (A$) ¼ $.70
Cross exchange rate: £1 ¼ A$2.28
One-year forward rate of A$ ¼ $.71
One-year forward rate of £ ¼ $1.58004
One-year U.S. interest rate ¼ 8.00%
One-year British interest rate ¼ 9.09%
One-year Australian interest rate ¼ 7.00%
Determine whether triangular arbitrage is feasible and, if so, how it should be conducted to make a profit