Question
Quotes for the dollar and euro are as follows: Spot contract midpoint &nbs
Quotes for the dollar and euro are as follows:
Spot contract midpoint S0EUR/USD = €0.8890/$
One-year forward contract midpoint F1EUR/USD = €0.8960/$
One-year Eurodollar interest rate iUSD = 3% per year
a. Your newspaper does not quote one-year Eurocurrency interest rates on EU euros. Make your own estimate of iEUR.
b. Suppose that you can trade at the prices for SEUR/USD, FEUR/USD and iUSD just given and that you can also either borrow or lend at a Thai Eurocurrency interest rate of iEUR = 4 percent per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?
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Quotes for the dollar and euro are as follows: Spot contract midpoint &nbs
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One-year forward contract midpoint
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One-year Eurodollar interest
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