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What is the profit from taking advantage of the mispricing

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Question 1: X0USD/EUR = 1.05; rUSD = 2%; rEUR = 7%; E (X1USD/EUR) = 1.16; Assuming that E (X1USD/EUR) = X1USD/EUR = 1.16; and that at t = 0 your short position is 250,000 units of the currency. What is the profit from taking advantage of the mispricing of the spot rate (based on UIRP)?

  1. USD 134,987.07
  2. USD 5,756.30
  3. USD 40,522.98
  4. USD 14,826.09

Reference no: EM132482899

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