Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United...

Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United Kingdom.

Arbitrage funds available to invest: $1M( or the equivalent in pounds)

Spot rate ($/Ł) : 1.9422

90-day forward exchange rate ($/Ł): 1.9150

Expected 90-day spot exchange rate ($/Ł): 1.8810

U.S. dollar 90-day interest rate: 2.000%

U.K. pound 90-day interest rate: 5.900%

A.Should Vicky make an covered investment in the UK? Show work and give answer.

B. Shoudl Vicky make an uncovered investment in the UK? Show work and give answer.

Jun 11, 2022

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Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United...

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