Question: Question 3 - 5 marks In a recent e - news, you observe that the 6 - month forward rate is $ 1 . 5

Question

3 - 5

marks

In a recent e

-

news, you observe that the

6 -

month forward rate is $

1.5031 /

Euro. Further, if you invest the dollar, it fetches you interest at the rate of

2 %

.

.

In comparison, the interest rate in Eurozone is

1 %

.

.

You also see that CAD

1.5513

are needed to purchase a Euro and CAD

1.332

are needed to buy a US$

.

Is it possible for you to make an arbitrage profit? If so

,

which of the arbitrage strategies will you employ and what will be the profit? Assume that interest rate parity holds, and you have one million dollars available to conduct arbitrage.

Question 3-5 marks In a recent e-news, you observe that the

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