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What is the net cash flow in one year

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Suppose that the annual interest rate is 1.0 percent in the United States and 3 percent in Germany, and that the spot exchange rate is $1.25/€ and the forward exchange rate, with one-year maturity, is $1.35/€. Assume that an arbitrager can borrow up to $1,000,000 or €800,000. If an astute trader finds an arbitrage, what is the net cash flow in one year?

Reference no: EM132141192

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