Suppose that the annual interest rate is 50 percent

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51. Suppose that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the forward exchange rate, with one- year maturity, is $1.16/€. Assume that an arbitrager can borrow up to $1,000,000. If an astute trader finds an arbitrage, what is the net cash flow in one year? A. $10,690 B. $15,000 C. $46,207 D. $21,964.29
52. A U.S.-based currency dealer has good credit and can borrow $1,000,000 for one year. The one-year interest rate in the U.S. is i $ = 2% and in the euro zone the one-year 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 dollar profit via covered interest arbitrage =
53. An Italian currency dealer has good credit and can borrow €800,000 for one year. The one- year interest rate in the U.S. is i $ = 2% and in the euro zone the one-year 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
Chapter 06 International Parity Relationships and Forecasting Foreign Exchange 54. Suppose that you are the treasurer of IBM with an extra US$1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810% (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = 100, and the six month forward rate is $1.00 = 110. What must the interest rate in Japan (on an investment of comparable risk) be before you are willing to consider investing there for six months?

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