Exhibit 7-1 Assume the Following Information

question 64

Multiple Choice

Exhibit 7-1
Assume the following information:
You have $300,000 to invest:
The spot bid rate for the euro (€) is $1.08
The spot ask quote for the euro is $1.10
The 180-day forward rate (bid) of the euro is $1.08
The 180-day forward rate (ask) of the euro is $1.10
The 180-day interest rate in the U.S. is 6%
The 180-day interest rate in Europe is 8%
-Refer to Exhibit 7-1. If you conduct covered interest arbitrage, what is your percentage return after 180 days? Is covered interest arbitrage feasible in this situation?

• A) 7.96%; feasible
• B) 6.04%; feasible
• C) 6.04%; not feasible
• D) 4.07%; not feasible
• E) 10.00%; feasible

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Definitions:

Transport

The movement of people, animals, or goods from one location to another through various modes such as road, rail, air, or sea.

Price of Coconuts

This refers to the market value at which coconuts can be bought or sold, influenced by factors such as supply, demand, and geographical location.

Coconut Suppliers

Businesses or individuals that provide coconuts to the market, either through direct sale or distribution channels.

Near Future

A time period that is shortly ahead, typically referring to events that are expected to happen soon.