6. A foreign exchange trader at J.P. Morgan Chase (NYSE:JPM) can borrow up to $4 million (or its foreign currency equivalent) of the bank's short-term funds, for the purpose of a covered interest arbitrage with the Danish Krone.

(a) Using the following quotes (interests are per year), can the trader make covered interest arbitrage (CIA) profit?

(b) Describe all the exact transactions they would take in order to achieve an arbitrage profit.

(c) What will be the expected profit from these transactions?

(d) Based on the profit calculated in part (c) as a percent of the funds used ($4 million), would the arbitrage opportunity remain if the trader would be facing a 0.05% larger bid-ask spread?

Arbitrage funds available $4,000,000

Spot exchange rate (kr/$) 6.570

3-month forward rate (kr/$) 6.600

U.S. dollar 3-month interest rate (annualized) 1.60%

Danish kroner 3-month interest rate (annualized) 4.40%