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Compute the covered interest arbitrage

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Reference no: EM132953390

Suppose that the market condition is summarized as follow:

Three-month interest rate in United States: 8.0% per annum

Three-month interest rate in Germany: 5.0% per annum

Current sport exchange rate: €1.0114/$

Three-month forward exchange rate: €1.0101/$

Using the above quotes and assuming that you can borrow up to $1,000,000 or £666,667 show how you can do a covered interest arbitrage (CIA) and the amount profit made or loss incurred. [Calculate both profit and losses]

Reference no: EM132953390

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