Question

Copenhagen Covered​ (A). Heidi​ Høi Jensen, a foreign exchange trader at J.P. Morgan​ Chase, can invest ​$4.9 ​million, or the foreign currency equivalent of the​ bank's short term​ funds, in a covered interest arbitrage with Denmark. Using the following​ quotes, can Heidi make a covered interest arbitrage​ (CIA) profit?

Arbitrage funds available $ 4,900,000

Spot exchange rate (kr/$) 6.1717

3-month forward rate (kr/$) 6.1982

U.S. dollar annual interest rate 3.100 %

Danish krone annual interest rate 5.000 %

The CIA profit potential is ____ ​%, which tells Heidi​ Høi Jensen that she should borrow ▼ (Danish krones or U.S. dollars) and invest in the higher-yielding currency the▼ (Danish krone or U.S. dollar) ​, for CIA profit. ​ (Round to three decimal places and select from the​ drop-down menus.)

Answer 1

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