International Financial Management

Covered Interest Arbitrage in Both Directions: The following
information is available:

? You have $500,000 to invest

? The current spot rate of the Moroccan dirham is $.110.

? The 60-day forward rate of the Moroccan dirham is $.108.

? The 60-day interest rate in the U.S. is 1 percent.

? The 60-day interest rate in Morocco is 2 percent.

a. What is the yield to a U.S. investor who conducts covered
interest arbitrage? Did covered

interest arbitrage work for the investor in this case?

b. Would covered interest arbitrage be possible for a
Moroccan investor in this case?