Suppose 1-year interest rates in Germany and the United States are 3% and 4% (continuous compounding). The spot exchange rate between the euro (EUR) and the US dollar (USD) is 1.15 USD per EUR. Suppose the 1-year forward exchange rate is 1.1550. How can an arbitrageur earn arbitrage profits? Explaining the details.

Answer rating: 100% (QA)

An arbitrageur can earn arbitrage profits by taking advantage of the discrepancy between the interest rates and the forward exchange rate In this scen... View the full answer