As a trader, you can trade based on the following data: 1. Spot rate: S0USD/EUR = 1.25

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As a trader, you can trade based on the following data:

1. Spot rate: S0USD/EUR = 1.25

2. Forward rate: F0USD/EUR = 1.248

3. U.S. one-year deposit rate: rUSD = 3 percent

4. Euro-zone one-year deposit rate: rEUR = 3.15 percent

a. What is the return on one U.S. dollar deposit?

b. What is the return in U.S. dollars on a dollar-covered euro lending?

c. Can the given information provide an arbitrage opportunity?

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Finance for Executives Managing for Value Creation

ISBN: 978-0538751346

4th edition

Authors: Gabriel Hawawini, Claude Viallet

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Question Posted: Mar 27, 2015 10:04 AM

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As a trader, you can trade based on the following data: 1. Spot rate: S0USD/EUR = 1.25

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a The return on one USD deposit is USD 100 1 003 USD 103 b The return in USD on a dollarcovered e...View the full answer

Finance for Executives Managing for Value Creation

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