Problem 14

Intro

You have $25,000 to invest. The spot rate for the euro is $1.16 per euro, while the 180-day forward rate is $1.17 per euro. The six-monthly interest rate in the euro area is 5% and in the U.S. it is 3%.

Attempt 5/6 for 10 pts.

Part 1

What is your risk-free rate of return (yield) from exploiting the higher interest rate in the euro area?

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