Question
Fareast bank offers the following quotes for the EUR and USD currency pair, a spot exchange rate of EUR 2.7626/USD and a one-year forward rate
Fareast bank offers the following quotes for the EUR and USD currency pair, a spot exchange rate of EUR 2.7626/USD and a one-year forward rate at EUR 2.6418/USD. The interest rates are 6.33% p.a. in the Eurozone and 3.50% p.a. in the United States. A professional trader who can borrow USD 1,800,000 (or its EUR equivalent) has the ability to accurately predict the exchange rate in one year at EUR 2.8381/USD. How much arbitrage profit or loss can the trader make by engaging in a carry trade?
a.USD 24.79
b. -EUR 81,439.56
c.EUR 81,439.56
d. -USD 24.79
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