Question
eidi? Hi Jensen, a foreign exchange trader at J.P. Morgan ?Chase, can invest ?$5 ?million, or the foreign currency equivalent of the? bank's short term?
eidi? Hi Jensen, a foreign exchange trader at J.P. Morgan ?Chase, can invest ?$5 ?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 | $ | 5,000,000 | |
| Spot exchange rate (kr/$) | 6.1719 | ||
| 3-month forward rate (kr/$) | 6.1977 | ||
| U.S. dollar annual interest rate | 3.000 | % | |
| Danish krone annual interest rate | 4.900 | % |
The CIA profit potential is ........?%, Should she borrow Danish Krones or US Dollar? Should she invest the Danish Krones or the US Dollar in the higher yielding currency for CIA profit? ? (Round answers to three decimal places .)
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Understanding financial statements
Authors: Lyn M. Fraser, Aileen Ormiston
9th Edition
136086241, 978-0136086246
