The Spot Exchange Rate Is $0

question 2

Multiple Choice

The spot exchange rate is $0.56 per Brazilian real in American terms.Assume interest rates are continuously compounded.A US dollar invested in Treasury bonds grows to $1.0101 after ninety days.A real invested in risk-free Brazilian government Treasury securities grows to 1.0113 reals at the end of the same time period.A broker offers to trade a ninety-day forward contract to buy or sell 1 million reals at the exchange rate of $0.55 per real.The arbitrage profit that you can make today by trading one forward and other securities is approximately equal to:

• A) $7,550
• B) $9,242
• C) $10,546
• D) $17,630
• E) None of these answers are correct.

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