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1. 2. 3. 4. 5. STEP: 4 of 5 Suppose you observe that 90-day interest rate across the eurozone is 6%, while the interest rate

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1. 2. 3. 4. 5. STEP: 4 of 5 Suppose you observe that 90-day interest rate across the eurozone is 6%, while the interest rate in the U.S. over the same time period is 2%. Further, the spot rate and the 90-day forward rate on the euro are both $1.25. You have $700,000 that you wish to use in order to engage in covered interest arbitrage. After 90-days in the bank, you withdraw your 593,600 euros from the bank in the eurozone, and exchange them for dollars in order to fulfill the forward contract, receiving $ This represents a profit of $ over your initial $700,000. TOTAL SCORE: 215 Grade Step

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