Use the following FACTS: You have $1 million to invest:

Use the following FACTS:

You have $1 million to invest:

The spot bid quote for the euro (€) is $1.19

The spot ask a quote for the euro is $1.24

The 180-day forward rate (bid) of the euro is $1.19

The 180-day forward rate (ask) of the euro is $1.24

The 180-day interest rate in the United States is 3%

The 180-day interest rate in Europe is 5%

(1) If you conduct covered interest arbitrage, what amount will you have after 180 days (assume the forward rates become the spot rates)

(2) Is covered interest arbitrage possible in this situation?

(3) if covered interest arbitrage is possible, calculate the profit.


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