Statoil's Arbitrage. Statoil, the national oil company of Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar, rather than the Norwegian krone, as its functional currency. Ari Karlsen is a currency trader for Statoil, and has immediate use of either $3.1 million (or the Norwegian krone equivalent). He is faced with the following market rates and wonders whether he can make some arbitrage profits in the coming 90 days.

Abitrage funds available

$

3,100,000

Spot exchange rate (Nok/$)

6.0312

3-month forward rate (Nok/$)

6.0189

U.S. dollar annual interest rate

4.995

%

Norwegian krone annual interest rate

4.447

%

The CIA profit potential is_______ which tells Ari Karlsen that he should borrow_______ and invest in the higher yielding currency,_______ to lock in a covered interest arbitrage (CIA) profit.

Ari Karlsen generates a CIA profit of_______ by investing in the_______ interest rate currency, the_______ and simultaneously selling the_______ proceeds forward into_______ at a forward premium which does not completely negate the interest differential. (Round to two decimal places and select from the drop-down menus.)