Assume the following information: U.S. investors have $1,000,000 to invest 1-yea

Question

Assume the following information:

U.S. investors have $1,000,000 to invest
1-year deposit rate offered on U.S. dollars = 12%
1-year deposit rate offered on Singapore dollars= 10%
1-year forward rate of Singapore dollars = $0.412
Spot rate of Singapore dollar = $0.400

Should a U.S. based investor Covered interest arbitrage and invest in Singapore?
Answer
No because the return would be 13.3%
Yes because the return would be 13.3%
Yes because the return would be 14.23%
No because the return would be 14.23%

Explanation / Answer

Yes because the return would be 14.23%

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