Question
You land a plum job as a foreign currency trader at JPMorgan and have been given a small investment fund of $5,000,000 to invest. You
You land a plum job as a foreign currency trader at JPMorgan and have been given a small investment fund of $5,000,000 to invest. You are investigating covered interest rate arbitrage opportunities and observe the following data for the Denmark kroner:
Funds to invest: $5,000,000
Spot exchange rate: USDDKK 6.1720
3 month forward rate: USDDKK 6.1980
US dollar 3 month interest rate: 3% annualized
Danish kroner 3-month interest rate: 5.00% annualized
Based upon this information, can you make a covered interest rate profit and by how much?
Group of answer choices
Profit of $3,763
Profit $5,325
Profit $16,100
This is an unprofitable trade
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Public Finance
Authors: Harvey S. Rosen
5th Edition
025617329X, 978-0256173291
