Assume the following information: You have $1,000,000 to invest Spot rate 90 day forward rate Money...

 

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Assume the following information: You have $1,000,000 to invest Spot rate 90 day forward rate Money market rate in the U.S. Money market rate in the in Euro zone $1.36/€ $1.41/€ 1% per annum 3% per annum. If you use covered interest arbitrage for a 90-day investment, is it possible to produce an arbitrage profit in US dollars after 90 days? Show all calculations necessary to prove that an arbitrage profit was made. Assume the following information: You have $1,000,000 to invest Spot rate 90 day forward rate Money market rate in the U.S. Money market rate in the in Euro zone $1.36/€ $1.41/€ 1% per annum 3% per annum. If you use covered interest arbitrage for a 90-day investment, is it possible to produce an arbitrage profit in US dollars after 90 days? Show all calculations necessary to prove that an arbitrage profit was made.

Answer rating: 100% (QA)

Step 1 Calculate the potential return from investing in the US money market Using the money market rate in the US of 1 per annum we can calculate the ... View the full answer