Sofie Kristensen, a forex trader at Citibank, can invest $5 million, or its foreign currency equivalent, in a covered interest arbitrage with Denmark. She is now analyzing the arbitrage profit potential in the same market after a change in interest rates.

Arbitrage funds available	$	5,000,000
Spot exchange rate (kr/$)		6.1723
3-month forward rate (kr/$)		6.1976
U.S. dollar annual interest rate		3.950	%
Danish krone annual interest rate		5.050	%

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Part 1

The CIA profit potential is

%.

This tells Sofie that she should borrow

Danish krone U.S. dollars

and invest in the

higher lower

interest rate currency,

the dollar the krone

,

allowing her to gain on the re-exchange of dollars for krone at the end of the period. (Round to three decimal places and select from the drop-down menus.)

The CIA profit amount is

kr