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wonders if he should invest in U.S. dollars for six months or make a $1,000,000 for a short-term money moont Jack Johnson is a foreign exchange dealer for a NYC bank. He has a Please write your answer for parts a through in the answer boxes, and circle the correct answer for park Interest arbitrage (CIA) in the Euro. Ho faces that Important: In order to earn points for parts a, b, c, d, and g. your answers must be correct to four decimals, and to earn points for parts 1. n, i and ), your answers must be correct to two decimals. (Points: a, b: 2 points, c-k 1 point) Assumptions Value Euro Equivalent Arbitrage funds available $1,000,000 C853.400 Spot exchange rate (Euros/$) 0.8534 6 month forward rate (Euros/$) 0.8478 6-month U.S. dollar interest rate (APR) 3.400% 6-month Euro Interest rate (APR) 1.600% a. b C. END Difference in int. rates (i - 1$) (in percent): Forward premium on Euro (in percent): Hence, CIA Profit (in percent) is: (1+ periodic US $ int rate for 6 month period): START d. CIA Profit: 1. $1,000,000 Net CIA Profit: i. Forward 180 (Euros/s) 0.8478 - -> 180 days h. Spot (Euros/$) 0.8534 g. US$ deposits Euro Der (1+ periodic Euro int rate for 6 month period) f. Will Jack be better off investing in US$ deposits, or Euro deposits using CIA? (Please circle)

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