Suppose that the market condition is summarized as follow: Three-month interest rate in United States: 8.0% per
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Question:
Three-month interest rate in United States: 8.0% per annum
Three-month interest rate in Germany: 5.0% per annum
Current sport exchange rate: €1.0114/$
Three-month forward exchange rate: €1.0101/$
Using the above quotes and assuming that you can borrow up to $1,000,000 or £666,667 show how you can do a covered interest arbitrage (CIA) and the amount profit made or loss incurred. [Calculate both profit and losses]
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