Investing currency is converted to borrowing currency

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Reference no: EM131913331

A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro, zone the one-year interest rate is i€ = 6%. The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00.

1) If want your profit to be in €, how much of the investing currency is converted to the borrowing currency?

2) State the € profit.

Reference no: EM131913331

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