Heidi Hi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5.05 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?

Copenhagen Covered (A). Heidi Hei Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5.05 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 $ 5,050,000 Spot exchange rate (kr/S) 6.1719 3-month forward rate (kr/5) 6.1982 US dollar annual interest rate 3.000 % Danish krone annual interest rate 5.050 % The CIA profit potential is %, which tells Heidi Hoi Jensen that she should borrow and invest in the higher yielding currency the for CIA profit (Round to three decimal places and select from the drop-down menus) To calculate the CIA profit amount, follow the steps below First, convert the investment amount to Danish krone using the following formula To calculate the CIA profit potential, follow the steps below: Danish krone = US dollar investment x Spot rate First, calculate the difference in the interest rate using the following formula Next, calculate the proceeds of the Danish krone amount after 90 days using the following formula Difference in Danish Krone U.S. dollar Danish krone Danish krone x (1 + Danish krone interest rateso days) interest rates interest rate interest rate in 90 days Next convert the Danish krone to US dollars using this formula: Next, calculate the forward discount on the krone using this formula: U.S. dollars = Danish krone in 90 days Forward rate Forward discount Spot rate - Forward rate Then, calculate the proceeds of the original investment amount in US dollars after 90 days using the on the krone Forward rate Days following formula Finally, calculate the CIA profit potential using the following formula: U.S. dollar *(1 + U.S. dollar interest ratego days) investment amount CIA profit Difference in Forward discount Finally, calculate the covered interest arbitrage (CIA) profit using this formula: potential interest rates on the krone CIA profit U.S. dollar from U.S. dollar at U.S. dollar investment U.S. dollar interest rate This tells Heidi Hoi Jensen that she should borrow dollars and invest in the higher yielding currency the Danish kroner, for CIA profit. Heidi Hoi Jensen generates a covered interest arbitrage (CIA) profit because she is able to generate an even higher interest return in Danish kroner than she gives up" by selling the proceeds forward at the forward rate 360 U.S. dollar