Question
Suppose that the current EUR/GBP rate is 0.6661 and the one-year forward exchange rate is 0.6725. The one-year interest rate is 1.8% in euros and
Suppose that the current EUR/GBP rate is 0.6661 and the one-year forward exchange rate is 0.6725. The one-year interest rate is 1.8% in euros and 2.6% in pounds. You can borrow at most 1,000,000 or the equivalent pound amount. Suppose you are a Euro-based investor. Determine the profit/loss (in EUR, no cents) if you borrow in pounds and invest locally.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
