Euro-denominated profit via covered interest arbitrage

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An Italian currency dealer has good credit and can borrow €937,500 for one year. The one-year interest rate in the U.S. is i$ = 2.19% and in the euro zone the one-year interest rate is i€ = 6.089%. The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00. Show how to realize and calculate the certain euro-denominated profit via covered interest arbitrage.

Reference no: EM131983924

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