The interest rate is 10% on the dollar and 2% on the yen. Also, the...
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The interest rate is 10% on the dollar and 2% on the yen. Also, the current spot rate is $1 = 120 and the one-year forward rate is $1 = 115. Is there an opportunity for covered interest arbitrage? If yes, what is the arbitrage profit in terms of a percentage?
Select one:
a.
Yes. 4.2%
b.
Yes. 1.54%
c.
Yes. 3.42%.
d.
No.
Can you please provide the explanation, formula and correct answer for the problem above?
I need specific step by step on how to solve the problem. The answer is C) "Yes. 3.425" Can you please explain how/why?
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