One Year U

question 66

Multiple Choice

One year U.S.interest rates are 7% and European interest rates are 5%.The spot euro direct exchange rate quote is 1.30 and the one year forward rate direct quote is 1.25.If you have $1 million dollars or € 1 million to start with what would be your dollar profits from an interest arbitrage based on this data?

• A) $60,384
• B) $42,973
• C) $68,422
• D) $78,500

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Definitions:

Exported

Products or services that are transported from one nation to another for the purpose of being sold or traded.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual amount received from the sale of that good.

Tariff

A tax imposed by a government on imported goods.

Restrictions

Limitations or regulations imposed to control or limit certain actions or activities within a specific context.