The spot rate: USD 1.21/EUR 2-year USD YTM = 0.11% 2-year EUR YTM = -...
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The spot rate: USD 1.21/EUR
2-year USD YTM = 0.11%
2-year EUR YTM = - 0.72%
1) Assume that the 2-year forward rate is USD 1.21/EUR. Is there an arbitrage opportunity? compute the profit if you can borrow up to USD 1,000,000 (or the equivalent in EUR). please round to the nearest US cent.
2) Suppose that you invest in the strategy known as the "carry trade". What will be your profit/loss if the spot rate in 2 years is USD 1.00/EUR.
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