Assume that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot rate is $/€1.12 and the forward rate is , with a one-year maturity, is $1.16/€. Suppose an arbitrator can borrow up to $1,000,000. If an astute trader finds an arbitrage, what is the net cash flow in one year?

Answer rating: 100% (QA)

Lets consider the steps involved in this arbitrage 1 Borrowing in the United States The trader borro... View the full answer