Hedge through covered interest arbitrage
Course:- Financial Management
Reference No.:- EM13942981

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You are expecting to receive 10M Euros 3-months from now. The interest rates are 3% in the US and 5% in Germany. Current spot exchange rate: $1.20/Euro and 3-month Forward rates: $1.15/Euro.

a. How much $ will you have 3-months from now if you hedge through covered interest arbitrage?

b. How much will you have if you hedge through forward contract?

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