Question

Copenhagen Covered​ (B). 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. She is now evaluating the arbitrage profit potential in the same market after interest rates change.​ (Note that anytime the difference in interest rates does not exactly equal the forward​ premium, it must be possible to make CIA profit one way or​another.)

Arbitrage funds available	$	4,900,000
Spot exchange rate (kr/$)		6.1725
3-month forward rate (kr/$)		6.1979
U.S. dollar annual interest rate		3.950	%
Danish krone annual interest rate		4.900	%

The CIA profit potential is ____%,which tells Heidi that she should borrow (Danish Krone or USD)  and invest in the Higher or Lower) interest rate​ currency, (Danish Krone or USD)  gaining on the​ re-exchange of dollars for krone at the end of the period. ​ (Round to three decimal places)

The CIA profit amount is ______. (Round to two decimal​ places.)

Answer 1

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