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(Coverage Interest Arbitrage, 3 of 3) Assume you have good credit and can borrow either $1,000,000 or 800,000 for one year. The one-year interest rate
(Coverage Interest Arbitrage, 3 of 3) Assume you have 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 is = 3.5% and in the euro zone the one-year interest rate is i = 2.2%. The spot exchange rate is $1.25 = 1.00 and the one-year forward exchange rate is $1.24 - 1.00. How much profits can you make by entering into a coverage interest arbitrage? O $22,000.00 O $21,176.00 $17,077.42 $8.176.00
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