Suppose that the current spot exchange rate is 1.50/ and the one-year forward exchange rate...
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Suppose that the current spot exchange rate is 1.50/ and the one-year forward exchange rate is 1.60/. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most 1,000,000 or the equivalent pound amount, i.e., 666,667, at the current spot exchange rate.
Suppose you are a pound-based investor. Show the covered arbitrage process and determine the pound profit amount.
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