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Suppose that the current spot exchange rate is 0 . 8 1 per $ and the three - month forward exchange rate is 0 .
Suppose that the current spot exchange rate is per $ and the threemonth forward exchange rate is per $ The threemonth interest rate is percent per annum in the United States and percent per annum in France. Assume that you can borrow up to $ or
Required:
a How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of US dollars? What will be the size of your arbitrage profit?
b Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. How will you realize a certain profit and size of your arbitrage profit?
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Required A
How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of US dollars? What will be the size of your arbitrage profit?
Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar.
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