Question
Suppose the EURO/USD spot rate today is 0.90/$, the U.S. interest rate is 4.5% and the euro interest rate is 5%. You log onto your
Suppose the EURO/USD spot rate today is 0.90/$, the U.S. interest rate is 4.5% and the euro interest rate is 5%. You log onto your electronic brokerage account and find that the current quote for the 360-day forward rate of USD/EURO is $1.125/. Is there an arbitrage opportunity? If so, how much profit would you be able to receive if you invested $100? What do you expect to happen amongst your fellow traders? (Whenever necessary, round your numbers to three decimal places.)
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Accounting What the Numbers Mean
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,
9th Edition
978-0-07-76261, 0-07-762611-7, 9780078025297, 978-0073527062
