Question: Please Show all work please so I can understand. Given the following information, find the profits you can make using covered interest arbitrage. Assume you

Please Show all work please so I can understand.

Given the following information, find the profits you can make using covered interest arbitrage. Assume you can borrow either EUR 100,000 or JPY 14,619,883.04

EUR interest rate = 3.5% per year

JPY interest rate = 0.4530% per year

S (EUR/JPY) = EUR 0.00684 per JPY

F (EUR/JPY) = EUR 0.0074 per JPY for 1 year maturity forward contract

a. Which currency would you borrow to conduct covered-interest arbitrage?

b. Assume you want your profits in euro, what covered-interest arbitrage profits do you expect in 1 year? Show all the steps involved in the covered-interest arbitrage process.

c. What would be the profits if you realize them in JPY? Show your calculations.

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