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 $20,013.03 OR €15,887.14
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- Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per year in France. Assume that you can borrow up to $1,000,000 or €800,000. Assume that you want to realize profit in terms of euros. Determine the arbitrage profit in euros.Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €800,000. a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit. b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. 2. ATech has fixed costs of $7 million and profits of $4 million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $4 million. But it operates with fixed costs of $5 million and lower variable costs. a. Which firm has higher operating leverage? Hint: Use Degree of Operating Leverage (DOL), b. Which firm will likely have higher profits if the…Suppose that the current spot exchange rate is €0.830/S and the three-month forward exchange rate is €o.815/S. The three-month interest rate is 6.00 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €830,000. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.
- Suppose that the current EUR/GBP rate is 0.6674 and the one-year forward exchange rate is 0.6748. The one-year interest rate is 1.4% in euros and 3.4% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a Euro-based investor. Determine the profit/loss (in EUR, no cents) if you borrow locally and invest in poundsSuppose that the current EUR/GBP rate is 0.6668 and the one-year forward exchange rate is 0.6742. The one-year interest rate is 1.8% in euros and 3.6% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow locally and invest in Euros.A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year inflation rate in the U.S. is r$ = 2.5% and in the euro zone the one-year inflation rate is л€ = 5.5%. The one-year forward exchange rate is $1.20 = €1.00; what must the spot rate be to eliminate arbitrage opportunities? O $1.2471- €1.00 O $1.1547 €1.00 $1.0200 €1.00 O $1.2351 - €1.00
- Suppose that the current spot exchange rate is €0.85 per $ and the three-month forward exchange rate is €0.8313 per $. The three- month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €850,000. Required: a. How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. How will you realize a certain profit and size of your arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? Note: Do not round…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. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.Suppose that the current spot exchange rate is €1.72 per £ and the one-year forward exchange rate is €1.80 per £. 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., £581,395, at the current spot exchange rate. Required: a. If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? b. How will the interest rate parity be restored as a result of the above transactions? c. If you are a pound-based investor, what is the covered arbitrage process and the size of the arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar. Profit from…
- A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year interest rate in the U.S. is i$= 3.5% and in the euro zone the one-year interest rate is i€ = 6.5%. The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 - €1.00. Show how to realize a certain profit via covered interest arbitrage. O Borrow $1,000,000 at 3.5%. Trade $1,000,000 for €800,000; invest at i€ - 6.5%; translate proceeds back at forward rate of $1.20 - €1.00, gross proceeds - $1,022,400. Both B) and C) Ⓒ Borrow €800,000 at i€ = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 3.5% for one year; translate $1,035,000 back into euro at the forward rate of $1.20 - €1.00. Net profit €10,500. Borrow €800,000 at i€ - 6.5% ; translate to dollars at the spot, invest in the U.S. at i$ - 3.5 % for one year; translate €852,000 back into dollars at the forward rate of $1.20 €1.00. Net profit $12,600.Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60% per annum in the United States and 5.40% per annum in France. Assume that you can borrow $1,000,000. How much can you realize via covered interest arbitrage? €10,800. $23,758. €37,757. $7,813. $37,757. $14,000.Carry trade. Suppose the 1-year borrowing rate in dollars is 1.5 % . The 1-year lending rate in EURO is 3.5 %. The direct spot ask exchange rate is $1.0899/EURO. A trader who borrows $ 1 Million Trading $1 Million for Euro today at the spot invest in Euro. How much money of principle and interest in term of USD that trader has to repayment to US bank? How much profit that trading can get for one year invested in EURO? The exchange rate of USD/EURO should not less than which level exchange rate? The carry trade is profitable as long as the interest rate differential is (Less or greater) than the (depreciation or appreciation) of the fund currency against the investment currency.