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You have $5,000 (US dollars) to invest: Current spot rate of euro = $1.10 1-year forward rate of euro = $1.08 1-year deposit rate in
You have $5,000 (US dollars) to invest:
Current spot rate of euro = $1.10
1-year forward rate of euro = $1.08
1-year deposit rate in U.S. = 2%
1-year deposit rate in Europe = 4%
If you use covered interest arbitrage for a 1-year investment, what will be the amount of U.S. dollars you will have after one year?
$5,296.30.$5,105.45.
$5,007.27.
$5,194.44
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