Question
One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Germany. The spot exchange
One year borrowing and deposit interest rates are 12.5% and 10.5% respectively in the US and 10.5% and 8.5% respectively in Germany. The spot exchange rate for the US dollar is $1.50 to the EURO. The 12-month forward rate is $1.55.
i) Assuming you do not have any initial investment funds, suggest a way you might profit from the pricing inconsistency presented above.
ii) Will the situation persist forever? Explain your answer
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Financial Markets And Institutions
Authors: Anthony Saunders, Marcia Cornett
8th Edition
1264098723, 978-1264098729
