Use the following FACTS: You have $1 million to invest: The spot bid quote for the euro

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Question:

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.

Related Book For answer-question

Intermediate Accounting

ISBN: 978-0324659139

11th edition

Authors: Loren A. Nikolai, John D. Bazley, Jefferson P. Jones

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Posted Date: Feb 24, 2021 07:58 AM

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Use the following FACTS: You have $1 million to invest: The spot bid quote for the euro

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1 In 180 days the covered interest arbitrage is 1000000forward rate 10000001... View the full answer

Intermediate Accounting

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