A currency dealer can borrow $1,400,000 (or the equivalent in euros) for one year. The one-year interest rate is 6.80% in the U.S. and 4.20% in the euro zone. The spot exchange rate is $1.2128/€1.00 and the one-year forward exchange rate is $1.2597/€1.00. What arbitrage profit results if the trader borrows the maximum available funds? $77,688.53 OR €61,672.25 $36,400.00 OR €28,895.77 $9,850.03 OR €7,819.35 $100,995.09 OR €80,173.92 $15,887.14 OR €12,611.84 $20,013.03 OR €15,887.14
A currency dealer can borrow $1,400,000 (or the equivalent in euros) for one year. The one-year interest rate is 6.80% in the U.S. and 4.20% in the euro zone. The spot exchange rate is $1.2128/€1.00 and the one-year forward exchange rate is $1.2597/€1.00. What arbitrage profit results if the trader borrows the maximum available funds? $77,688.53 OR €61,672.25 $36,400.00 OR €28,895.77 $9,850.03 OR €7,819.35 $100,995.09 OR €80,173.92 $15,887.14 OR €12,611.84 $20,013.03 OR €15,887.14
Chapter22: International Financial Management
Section: Chapter Questions
Problem 2P
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Question
![A currency dealer can borrow $1,400,000 (or the equivalent in euros) for one year. The one-year interest rate is
6.80% in the U.S. and 4.20% in the euro zone. The spot exchange rate is $1.2128/€1.00 and the one-year forward
exchange rate is $1.2597/€1.00. What arbitrage profit results if the trader borrows the maximum available funds?
$77,688.53 OR €61,672.25
$36,400.00 OR €28,895.77
$9,850.03 OR €7,819.35
$100,995.09 OR €80,173.92
$15,887.14 OR €12,611.84
$20,013.03 OR €15,887.14](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2a05008c-2328-4042-a55b-5662c580eb7b%2F13c4bc7f-af34-4369-9220-42726ab3693f%2Fwhiy5ga_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A currency dealer can borrow $1,400,000 (or the equivalent in euros) for one year. The one-year interest rate is
6.80% in the U.S. and 4.20% in the euro zone. The spot exchange rate is $1.2128/€1.00 and the one-year forward
exchange rate is $1.2597/€1.00. What arbitrage profit results if the trader borrows the maximum available funds?
$77,688.53 OR €61,672.25
$36,400.00 OR €28,895.77
$9,850.03 OR €7,819.35
$100,995.09 OR €80,173.92
$15,887.14 OR €12,611.84
$20,013.03 OR €15,887.14
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