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How much profit can be realized

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Suppose that the six-month interest rate in the United Kingdom is 0.5% per annum the sixmonth interest rate in Germany is 1.2% per annum. If the spot exchange rate is GBP/EUR 1.1286 and the six-month forward exchange rate is GBP/EUR 1.1312. Assume that the arbitrager can borrow up to EUR 1,000,000 or the equivalent GBP amount, at the spot rate. If it is possible to gain profit, how much profit can be realized?

Reference no: EM132509852

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