In: Finance
Copenhagen Covered (A). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $4.9 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the following quotes, can Heidi make a covered interest arbitrage (CIA) profit?
Arbitrage funds available |
$ |
4,900,000 |
|
Spot exchange rate (kr/$) |
6.1719 |
||
3-month forward rate (kr/$) |
6.1984 |
||
U.S. dollar annual interest rate |
2.950 |
% |
|
Danish krone annual interest rate |
5.100 |
% |
The CIA profit potential is _____%, which tells Heidi Høi Jensen that she should borrow (Danish Krones or USD) and invest in the higher yielding currency the (Danish Krones or USD), for CIA profit. (Round to three decimal place)
Heidi Høi Jensen generates a covered interest arbitrage (CIA) profit of _____$ (Round to the nearest cent.)