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You are provided with the following details. Calculate the amount of possible covered interest arbitrage profit that can be made on an investment of $1m

You are provided with the following details. Calculate the amount of possible covered interest arbitrage profit that can be made on an investment of $1m USD or EUR equivalent. (6 Marks)

Spot Exchange Rate (EUR/USD)

0.789

EUR/USD 3 Months Fwd Rate

0.781

Interest Rate in the United States (Per Annum)

5%

Interest Rate in Germany (Per Annum)

3%

Please show all steps and calculations in the process.

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