12. Copenhagen CIA (B). John Duell is now evaluating the arbitrage profit potential in the same market after interest rates change.

a. Assume that interest rates in the United States increase to 4% per year (1% for 90 days) but all other rates remain the same. Can John make a 90- day covered interest arbitrage profit?

b. Assume that Danish kroner interest rates increase to 6% per year (1.5% for 90 days) but all other rates remain the same, including the origi- nal U.S. interest rate of 3% per year. Calculate if John could make a 90-day covered interest arbi- trage profit.