Exhibit 7-1 Assume the Following Information

question 72

Multiple Choice

Exhibit 7-1
Assume the following information:
You have $300,000 to invest:
The spot bid quote for the euro (€) is $1.08
The spot ask quote for the euro is $1.10
The 180-day forward rate (bid) of the euro is $1.08
The 180-day forward rate (ask) of the euro is $1.10
The 180-day interest rate in the United States is 6%
The 180-day interest rate in Europe is 8%
-Refer to Exhibit 7-1 above. If you conduct covered interest arbitrage, what is your percentage return aFter 180 days? Is covered interest arbitrage feasible in this situation?

• A)7.96 percent; feasible
• B)6.04 percent; feasible
• C)6.04 percent; not feasible
• D)4.07 percent; not feasible
• E)10.00 percent; feasible

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Definitions:

Surplus U.S. Farm Products

Excess agricultural products in the United States that exceed domestic demand, often leading to exports or storage.

Developing Countries

Nations with lower levels of industrialization, a lower Human Development Index (HDI) than developed countries, and generally, a lower standard of living, often characterized by higher poverty rates and underdeveloped infrastructure.

Political Support

Refers to the backing or endorsement of a politician, political party, or policy by individuals, groups, or organizations.

Farm Subsidies

Financial support from governments to farmers to help stabilize food prices, ensure a steady food supply, and support agricultural sectors.