Question
A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. is i$
A currency dealer has good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the one-year interest rate is i = 6%. The one-year forward exchange rate is $1.20 = 1.00; what must the spot rate be to eliminate arbitrage opportunities?
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Financial Management For Public, Health, And Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
6th Edition
150639681X, 978-1506396811
