Interest Rates on the U

question 13

Multiple Choice

Interest rates on the U.S.dollar are 6.5% and euro rates are 5.5%.The dollar per euro spot rate is 0.950.What is the arbitrage profit on a required 1 million euro payment if the forward rate is 0.980 dollars per euro and the exchange occurs in one year?

• A) $10,000
• B) $21,000
• C) $28,000
• D) $34,000

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Definitions:

ROI

Return on Investment, a performance metric used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Operating Assets

Assets utilized in the day-to-day operations of a business to generate revenue.

Return on Investment

A metric used to assess the profitability of an investment, calculated as the net profit of the investment divided by its cost.