An opportunity to borrow 800,000 US Dollar or 800,000 Canadian Dollars has arisen, both for a term of 6 months. The annual interest rate for the US Dollar denominated loan is 6.22% while the Canadian Dollar denominated loan is 8.82%. The spot exchange rate is 1.22 Canadian Dollars per US Dollar and the six month forward rate is 1.05 Canadian Dollars per US Dollar.

What would be the profit in case of an arbitrage opportunity?

Answer rating: 100% (QA)

To determine whether there is an arbitrage opportunity we need to calculate the cost of borrowing 80... View the full answer