Heidi Hi Jensen, a foreign exchange trader at JPMorgan Chase, can invest $5 million, or the foreign

Question:

Heidi Høi Jensen, a foreign exchange trader at JPMorgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short-term funds, in a covered interest arbitrage with Denmark. Using the following quotes, can Heidi make a covered interest arbitrage (CIA) profit?

Arbitrage funds available......................$5,000,000

Spot exchange rate (kr/$)...........................6.1720

3-month forward rate (kr/$)........................6.1980

U.S. dollar 3-month interest rate..................3.000%

Danish kroner 3-month interest rate.............5.000%

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...