Question
Copenhagen Covered (A). Heidi Hi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $4.95 million, or the foreign currency equivalent of the
Copenhagen Covered (A). Heidi Hi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest
$4.95
million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the following quotes, can Heidi make a covered interest arbitrage (CIA) profit?
Arbitrage funds available | $ | 4,950,000 | |
Spot exchange rate (kr/$) | 6.1722 | ||
3-month forward rate (kr/$) | 6.1979 | ||
U.S. dollar annual interest rate | 3.000 | % | |
Danish krone annual interest rate | 5.000 | % |
The CIA profit potential is ____%, which tells Heidi Hi Jensen that she should borrow_______(Danish krones or U.S. dollars) and invest in the higher yielding currency the _______ ( Danish krone U.S. dollar) for CIA profit. Round to three decimal places
Heidi Hi Jensen generates a covered interest arbitrage (CIA) profit of $______. (Round to the nearest cent.)
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