Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interes the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1. EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitra If so, what would be the total profit if we borrowed $25 million? OA YES-$27,395.21 would be the profit B. YES- $33,385.41 would be the profit OC. YES-$37,342.89 would be the profit OD. NO-there is no opportunity for a profit
Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interes the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1. EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitra If so, what would be the total profit if we borrowed $25 million? OA YES-$27,395.21 would be the profit B. YES- $33,385.41 would be the profit OC. YES-$37,342.89 would be the profit OD. NO-there is no opportunity for a profit
Chapter22: International Financial Management
Section: Chapter Questions
Problem 2P
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![Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interest rate in
the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1.0162
EUR/USD. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage?
If so, what would be the total profit if we borrowed $25 million?
OA YES-$27,395.21 would be the profit
OB. YES-$33,385.41 would be the profit
OC. YES-$37,342.89 would be the profit
OD. NO- there is no opportunity for a profit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F377ddc03-d759-4070-9c99-19590cebf476%2Fc03667dc-eae3-482a-9694-c25d97809b0c%2Fulq8fnp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interest rate in
the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1.0162
EUR/USD. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage?
If so, what would be the total profit if we borrowed $25 million?
OA YES-$27,395.21 would be the profit
OB. YES-$33,385.41 would be the profit
OC. YES-$37,342.89 would be the profit
OD. NO- there is no opportunity for a profit
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