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Suppose that the current spot exchange rate is €1.50/£ and the one-year forward exchange rate is €1.60/£. The one-year i
Posted: Thu May 19, 2022 6:19 am
by answerhappygod
- Suppose That The Current Spot Exchange Rate Is 1 50 And The One Year Forward Exchange Rate Is 1 60 The One Year I 1 (35.32 KiB) Viewed 25 times
Suppose that the current spot exchange rate is €1.50/£ and the one-year forward exchange rate is €1.60/£. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., £666,667, at the current spot exchange rate. Assume that you are a euro-based investor, determine the size of the arbitrage profit in euros.