Explain covered interest arbitrage whats will be the, Financial Management

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Explain covered interest arbitrage whats will be the

The spot exchange rate for USD /euro is 1.15; the forward rate in 6 months for USD / euro is 1.12. US interest rate is 1.5% per year while Europe interest rate is 2.5% per year.

A) Explain Covered Interest Arbitrage.

B) What’s will be the arbitrage profit in 6 months for 1,000,000 Euro using Covered Interest Arbitrage?

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