Suppose That the Annual Interest Rate Is 5

question 25

Multiple Choice

Suppose that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Germany,and that the spot exchange rate is $1.12/€ and the forward exchange rate,with one-year maturity,is $1.16/€.Assume that an arbitrager can borrow up to $1,000,000.If an astute trader finds an arbitrage,what is the net cash flow in one year?

• A)$10,690
• B)$15,000
• C)$46,207
• D)$21,964.29

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Definitions:

Tacit Knowledge

Knowledge gained from personal experience and contextual insights, which is difficult to formally document and transfer.

Explicit Knowledge

Information or knowledge that is formally articulated, documented, and easily communicated or transferred to others.

Escalation Of Commitment

The phenomenon where individuals or organizations continue to invest time, money, or resources into a failing project, decision, or endeavor.

Losing Ventures

Businesses or projects that fail to generate a profit or achieve their intended outcomes, often leading to financial loss or closure.