Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $20 million for 3 months? A. YES- $27,395.21 would be the profit B. YES- $29,385.41 would be the profit C. YES- $31,695.53 would be the profit D. YES- $33,875.42 would be the profit E. NO- there is no opportunity for a prof
Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $20 million for 3 months? A. YES- $27,395.21 would be the profit B. YES- $29,385.41 would be the profit C. YES- $31,695.53 would be the profit D. YES- $33,875.42 would be the profit E. NO- there is no opportunity for a prof
Chapter22: International Financial Management
Section: Chapter Questions
Problem 2P
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Question
Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage?
If so, what would be the total profit if we borrowed $20 million for 3 months?
A. YES- $27,395.21 would be the profit
B. YES- $29,385.41 would be the profit
C. YES- $31,695.53 would be the profit
D. YES- $33,875.42 would be the profit
E. NO- there is no opportunity for a profit
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