Question
Copenhagen Covered (A). Heidi Hi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $4.9 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 $4.9 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 $ 4,900,000
Spot exchange rate (kr/$) 6.1717
3-month forward rate (kr/$) 6.1982
U.S. dollar annual interest rate 3.100 %
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 or U.S. dollar) , for CIA profit. (Round to three decimal places and select from the drop-down menus.)
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