Suppose You Observe the Following 1-Year Interest Rates, Spot Exchange

question 8

Multiple Choice

Suppose you observe the following 1-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on 1 contract at maturity from this mispricing?

• A)$159.22
• B)$153.10
• C)$439.42
• D)None of the above The futures price of $1.48/€ is above the IRP futures price of $1.4641/€, so we want to sell . To hedge, we borrow $14,077.67 today at 4%, convert to euro at the spot rate of $1.45/€, invest at 3%. At maturity, our investment matures and pays €10,000, which we sell for $14,800, and then we repay our dollar borrowing with $14,640.78. Our risk-free profit = $159.22 = $14,800 - $14,640.78.

---

Definitions:

Proximal Socialization Outcomes

Immediate results that stem from the process of adapting and integrating into a new social environment or group.

Distal Socialization Outcomes

The long-term results of the socialization process, such as the integration into and acceptance by an organization’s culture.

Orientation Program

A structured introduction offered by an organization to acquaint new employees with its policies, procedures, culture, and the roles they will be assuming.

Workplace Stressors

Factors or conditions in the workplace that can cause stress to employees.