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:

Reference Group

A group to which an individual or another group is compared, serving as a model for behaviour or beliefs.

Social Class

A division of society based on social and economic status, affecting people's opportunities, lifestyle, attitudes, and behavior.