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Suppose the annual interest rate is 2 percent in the US and 4 percent in Germany, the spot exchange rate is USD 1.60 / EUR, and the 1-year forward rate is USD 1.58 / EUR. What is the arbitrage profit in USD at the end of the year if you start by borrowing USD 5,000,000?

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Suppose the annual interest rate is 2 percent in the US and 4 percent in Germany, the spot exchange rate is USD

1.60 / EUR, and the 1-year forward rate is USD 1.58 / EUR.  What is the arbitrage profit in USD at the end of the year if you start by borrowing USD 5,000,000?

 
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