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Ms. Chambers, a U.S. arbitrageur, is looking for arbitrage opportunities after interest rate changes. The available funds for arbitrage is $5,000,000. The spot exchange rate (Kr/USD) is 6.1720; 3 month forward rate (Kr/USD) 6.1980. Also US dollar denominated 3- month interest rate is 3.0% and Danish Kroner denominated 3-month interest rate is 6%.
Is arbitrage possible?
If arbitrage is possible, design the appropriate covered arbitrage strategy.
If arbitrage is possible, calculate the profits for the arbitrage strategy.
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