An italian currency dealer has good credit and can borrow, Ask an Expert

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An Italian currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the oneyear interest rate is i€ = 6%.

The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00.

Show how to realize a certain euro-denominated profit via covered interest arbitrage.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92795785

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