What will be profit or loss if you apply the, Financial Management

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What will be profit or loss if you apply the

Let's suppose you have $1 million to invest.

You are considering to invest in UK first, then convert the British Pound back to US$ in the future.

You know following information:

Annual Interest rate on investment in US: 2%

Annual Interest rate on investment in UK: 4%

Investment period: 1 year

Current exchange rate: 1.52 $/BP

Forward exchange rate which you can apply when converting BP to US$: 1.50 $/BP

What will be profit or loss if you apply the covered-interest arbitrage?

Profit, about $36,838

Profit, about $28,424

Profit, about $16,645

Profit, about $26,315

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