John works for a German firm. His firm needs $300,000 US in the USA for a year. As his firm is unknown in the USA, it is unable to get a credit line in the USA. Current one year forward rate is 3. 1S/€ and spot rate is 3S/€. He can borrow up to €1,000,000 at an interest rate of 8% in Germany. Given the information and his opportunities, he decides to generate a synthetic credit line using his bank facility. what will be The implied interest rate for his synthetic credit line?

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To generate a synthetic credit line John can borrow 1000000 at 8 interest rate in Germany and conver... View the full answer