1. a foreign exchange trader for Green Valley Capital, are exploring covered interest arbitrage opportunities between Euros and US Dollars ($) for the next 60 days.
You have 1million euros or $ 1.1 million at the current spot rate for the covered interest arbitrage and face the following quotes:
Arbitrage fund availabe 1,000,000 euros or $1,100,000
Spot exchange rate $ 1.1000/⬠60-day forward rate $1.1050/â¬
US Dollar annual interest rate 2.4% Euro annual interest rate 0.84%
A) what is the annual effective US dollar interest rate from Euro investement?
B) Show the steps and calculate the amount of the covered interest arbitrage profit.
c) determine a theoretical 60-day forward rate (round to 4 decimal places) that will result in a zero covered interest arbitrage profit.
1. a foreign exchange trader for Green Valley Capital, are exploring covered interest arbitrage opportunities between Euros and US Dollars ($) for the next 60 days.
You have 1million euros or $ 1.1 million at the current spot rate for the covered interest arbitrage and face the following quotes:
Arbitrage fund availabe 1,000,000 euros or $1,100,000
Spot exchange rate $ 1.1000/⬠60-day forward rate $1.1050/â¬
US Dollar annual interest rate 2.4% Euro annual interest rate 0.84%
A) what is the annual effective US dollar interest rate from Euro investement?
B) Show the steps and calculate the amount of the covered interest arbitrage profit.
c) determine a theoretical 60-day forward rate (round to 4 decimal places) that will result in a zero covered interest arbitrage profit.
