Current spot rate for the covered interest arbitrage

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Reference no: EM131051779

1. a foreign exchange trader for Green Valley Capital, are exploring covered interest arbitrage opportunities between Euros and US Dollars ($) for the next 60 days. You have 1million euros or $ 1.1 million at the current spot rate for the covered interest arbitrage and face the following quotes: Arbitrage fund availabe 1,000,000 euros or $1,100,000 Spot exchange rate $ 1.1000/€ 60-day forward rate $1.1050/€ US Dollar annual interest rate 2.4% Euro annual interest rate 0.84% A) what is the annual effective US dollar interest rate from Euro investement? B) Show the steps and calculate the amount of the covered interest arbitrage profit. c) determine a theoretical 60-day forward rate (round to 4 decimal places) that will result in a zero covered interest arbitrage profit.

Reference no: EM131051779

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