Question 1
What is the maximum net profit to a speculator with $1 million if interest rates on 1-year Treasuries are 6% in France, 4% in the United States and the exchange rate is expected to change from today's rate of 2Fr/$ to 2.1Fr/$ in 1 year?
◦ $1,060,000
◦ $1,005,683
◦ $1,040,000
◦ $1,050,000
◦ $1,009,524
Question 2
Which of the following is NOT true with respect to interest rate arbitrage?
◦ Interest rate arbitrage maintains the interest rate parity relationship.
◦ To arbitrage, you buy and sell something so that you have a positive investment and then earn a return on the transaction.
◦ It is rare that similar risk investments in one country earn more than another country after converting money to and from the foreign currency using spot and forward exchange rates.
◦ Arbitrageurs help exchange rates adjust to their correct levels rapidly and accurately.
◦ All of these are true.
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What principal will earn $77.14 interest at 6.65% p.