The CIA profit potential is%, which tells Heidi Høi Jensen that she should borrow interest rate currency, and invest in the gaining on the re-exchange of kroner for dollars at the end of the period.

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
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Ef 92.

Copenhagen Covered (C). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5.1 million,
or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. She is
now evaluating the arbitrage profit potential in the same market after interest rates change. (Note that anytime the
difference in interest rates does not exactly equal the forward premium, it must be possible to make CIA profit one way
or another.)
Arbitrage funds available
Spot exchange rate (kr/$)
3-month forward rate (kr/$)
US dollar annual interest rate
Danish kroner annual interest rate
5,100,000
6.1715
6.1984
3.000 %
5.900 %
The CIA profit potential is %, which tells Heidi Høi Jensen that she should borrow
interest rate currency,
(Round to three decimal places and select from the drop-down menus.)
and invest in the
, gaining on the re-exchange of kroner for dollars at the end of the period.
Transcribed Image Text:Copenhagen Covered (C). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5.1 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change. (Note that anytime the difference in interest rates does not exactly equal the forward premium, it must be possible to make CIA profit one way or another.) Arbitrage funds available Spot exchange rate (kr/$) 3-month forward rate (kr/$) US dollar annual interest rate Danish kroner annual interest rate 5,100,000 6.1715 6.1984 3.000 % 5.900 % The CIA profit potential is %, which tells Heidi Høi Jensen that she should borrow interest rate currency, (Round to three decimal places and select from the drop-down menus.) and invest in the , gaining on the re-exchange of kroner for dollars at the end of the period.
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