Question: The spot exchange rate is $1.20 per . One year ahead forward rate is $1.25 per . If the interest rate in dollars is 4%

The spot exchange rate is $1.20 per . One year ahead forward rate is $1.25 per . If the interest rate in dollars is 4% and the interest rate in euros is 5%. If an investor borrows $100 and invests in a euro denominated bond while locking the one year conversion rate using a forward contract. What is her profit from this strategy?

$5.38

$5.43

$5.48

$5.59

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