Kizspy Question: 30
(Choose 1 answer)
Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, and that the
spot exchange rate is $1.60/€ and the forward exchange rate, with one-year maturity, is $1.58/€. Assume that
an arbitrager can borrow up to $1,000,000 or €625,000.
If an astute trader finds an arbitrage, what is the net cash flow in one year?
A. $238.65
B. $14,000
C. $46,207
D. $7,000
