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/$)		6.1724
3-month forward rate (kr/$)		6.1978
U.S. dollar annual interest rate		2.950	%
Danish krone annual interest rate		4.950	%

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

or U.S. dollar)?

, for CIA profit.

Part 2

Heidi Hi Jensen generates a covered interest arbitrage (CIA) profit of $?