Suppose you observe that 90-day interest rate across the eurozone is 5%, while the interest rate in the U.S. over the same time period is 3%. Further, the spot rate and the 90-day forward rate on the euro are both $1.25.

You have $600,000 that you wish to use in order to engage in covered interest arbitrage.

After 90-days in the bank, your 480,000 euros will grow to how much 1(Including interest)?

Answer rating: 100% (QA)

To engage in covered interest arbitrage we need to compare the ... View the full answer