Solved: How to complete interest arbitrage, Microeconomics

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How to complete interest arbitrage

Question:

HJ, an abitrager with Bank of Montreal, faces the following CAD/USD prices;
Spot: CAD 1.49/USD
6M Forward: CAD 1.51/USD
6M CAD interest rate 7.5% per annum
6M USD interest rate 5.0% p.a.
H.J is authorized to use CAD20,000,000 or its USD equivalent. The ending profit, if any, should be realized in CAD. How can he complete interest arbitrage? What will be his profit?

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Microeconomics: How to complete interest arbitrage

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Microeconomics: How to complete interest arbitrage

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