Problems: 1.) Covered Interest Arbitrage - Suppose the following: Interest Rate in Euros is 15% in Frankfurt Interest Rate in US$s is 10% in New York Euro Spot Rate is $1.30 One Year Euro Forward Rate is $1.20 The Rates imply a forward discount in Euros of 7.7% {(1.20-1.30)/1.30} Covered Yield on Euros is approximately 7.3% (15%-7.7%) Transaction Amount $1,000,000