Question: As a trader you can trade based on the following

As a trader, you can trade based on the following data:
1. Spot rate: S0USD/EUR = 1.25
2. Forward rate: F0USD/EUR = 1.248
3. U.S. one-year deposit rate: rUSD = 3 percent
4. Euro-zone one-year deposit rate: rEUR = 3.15 percent
a. What is the return on one U.S. dollar deposit?
b. What is the return in U.S. dollars on a dollar-covered euro lending?
c. Can the given information provide an arbitrage opportunity?

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  • CreatedMarch 27, 2015
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