Question: Suppose That The Annual Interest Rate Is 3.0 Percent In The United States And 6.0 Percent In Germany, And That The Spot Exchange Rate Is $1.60/€ And The Forward Exchange Rate, With One-year Maturity, Is $1.56/€. Assume That An Arbitrager Can Borrow Up To $1,000,000 Or €625,000. If An Astute Trader Finds An Arbitrage, What Is The Net Cash Flow …

Suppose that the annual interest rate is 3.0 percent in theUnited States and 6.0 percent in Germany, and that the spotexchange rate is $1.60/€ and the forward exchange rate, withone-year maturity, is $1.56/€. Assume that an arbitrager can borrowup to $1,000,000 or €625,000. If an astute trader finds anarbitrage, what is the net cash flow in one year?

Select one:

a.

$3,500

b.

$33,500

c.

€33,500

d.

€3,500