Question
Suppose the following prevailed in the foreign currency market: $/€ (USD/EUR) spot: 1.800 $/€ (USD/EUR 90...
Suppose the following prevailed in the foreign currency market: $/€ (USD/EUR) spot: 1.800 $/€ (USD/EUR 90 day forward: 1.0810 $ (USD) interest rates 0.0075 (75 basis points or three fourths of one percent) € (EUR) interest rates 0.0010 (10 basis points or one tenth of one percent ) Use these data to answer the following three questions.
Question 12 (1 point) What is the forward premium/discount of the € (EUR)?
Question 13 (1 point) What is the USD - EUR interest differential?
Question 14 (1 point) If you had a trading authority of either $10,000,000 or 10,000,000€ how much profit could you make from a covered interest Arbitrage? Be sure to indicate if your profit is in USD or EUR.
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Answer #1
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