simple or compound interest rate for currincies
I’m solving a question related to arbitrage opportunities of a currency trade. Period is 3 months. The question gives me annualized 3 month interest rates.
I thought we were supposed to use compound interest unless LIBOR is mentioned, but the answer simply divides the interest rate to four, it’s like:
Suppose that we’re given: 3 month interest rate : %16 (annualized)
Answer : interest rate for the period is %4 ( 16/4)
I’m very confused
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