DK Investment Co is a US firm that executes a carry trade in which it borrow euros (where interest rates are presently low) and invests in British pounds (where interest rates are presently high). DK Investment uses $100,000 of its own funds and borrow an additional euro 600,000. It will pay 0.5% on its euro borrowed for the next month and will earn 1.0% per month on funds invested in UK (British pounds). Assume the euro spot rate is $1.3/euro, British pound's spot rate is $1.8/bp (so pounds is worth 1.38 euro) and after one month, the FX rates will be the same. What will be DK Investment Net US$ profit from this carry trade investment? O around $4,598 O around $4,900 O around $4,912 O around $4,376
DK Investment Co is a US firm that executes a carry trade in which it borrow euros (where interest rates are presently low) and invests in British pounds (where interest rates are presently high). DK Investment uses $100,000 of its own funds and borrow an additional euro 600,000. It will pay 0.5% on its euro borrowed for the next month and will earn 1.0% per month on funds invested in UK (British pounds). Assume the euro spot rate is $1.3/euro, British pound's spot rate is $1.8/bp (so pounds is worth 1.38 euro) and after one month, the FX rates will be the same. What will be DK Investment Net US$ profit from this carry trade investment? O around $4,598 O around $4,900 O around $4,912 O around $4,376
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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