Question: show all work please :) 9. Covered Interest Arbitrage on a 6-month horizon (12 points) US interest rate =10% Euro zone interest rate =2% -

show all work please :)

9. Covered Interest Arbitrage on a 6-month horizon (12 points) US interest rate =10% Euro zone interest rate =2% - The current spot rate is $1.0/ The forward rate is $1.1/ a. Please list the details on the steps of the arbitrage strategy. Arbitrage is an investment strategy in which an investor can buy an assets or collection of assets and concurrently sell at a higher price. This is only possible when two securitier have identical future payoffs. - Short higher prices and buy lower priced asset - Arbitrage trading will continue until securities or portfolios have identical prices. b. If you can start with a fund of $20,000, what would be your overall profit from the arbitrage? (show all your work) c. Once the arbitrageurs around the globe execute their strategy, the following would happen: - Euro interest rate (increase or decrease) - The spot rate (increase or decrease)

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