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Suppose that the one-year interest rate is 4.21 percent in the United States and 2.96 percent in Germany, and that the spot exchange rate is
Suppose that the one-year interest rate is 4.21 percent in the United States and 2.96 percent in Germany, and that the spot exchange rate is $1.1236/ and the one-year forward exchange rate, is $1.2706/. Assume that an arbitrageur can borrow up to $1,000,000. Calculate his arbitrage profit. If there is no arbitrage opportunities enter zero as your answer.
Answer Format: Keep two decimals. Include the currency unit. For example: 1.12($); 1.12( ).
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