An investment banker in spain notices that 1 year interest, Ask an Expert

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An investment banker in Spain notices that 1 year interest rates in Spain and Mexico are 12% and 8%, respectively. Current spot rates are as follows: €1.02/$, $.15/MP The one year forward rate is €.18/MP and the expected spot rate one year from now is €.14/MP.

A. What should the forward premium be for IRP to hold?

B. Assuming that the banker has access to one million euros, find his covered interest arbitrage profit (in euros). Round intermediate steps to four decimals.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92775513

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