Question: 1. Another possible step to reduce the impact of reducing value of EUR is to consider covered interest arbitrage. The forward contract for a 270-day

1. Another possible step to reduce the impact of reducing value of EUR is to consider covered interest arbitrage. The forward contract for a 270-day on EUR is GBP0.8610 and the current spot rate is GBP0.8673/EUR. The 270-day interest rate available to Siemons in Germany is 4% per annum, whilst in United Kingdom, the 270-day interest rate is 5% per annum. (a) Which country should Siemons borrow and invest if they intend to get profit form covered interest arbitrage? (b) Determine the amount of profit from this covered interest arbitrage if you are going to use EUR5,000,000 or equivalent. State your answer in EUR.

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