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Assume that annual interest rates are 8 percent in the United States and 7 percent in Turkey. An FI can borrow (by issuing CDs) or

Assume that annual interest rates are 8 percent in the United States and 7 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6571/Turkish lira (TL).

a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $8 million? What is the spread earned?

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