Prove that there is an opportunity for risk-free profit

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Reference no: EM131564010

The dealer A is offering to buy euros for the price of USD 1.24 for euro. The dealer B is offering to sell euros in a year for the price of USD 1.22. Suppose that euros can be borrowed at an annual rate of 5% and that dollars can be invested in a bank at an annual rate of 7%. Assume that the interest is simple both for borrowing dollars and investing euros. Assume that the interest is simple both for borrowing dollars and investing euros. Prove that there is an opportunity for risk-free profit.

Reference no: EM131564010

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