Will an arbitrageur facing the following prices be able to make money?

Question

Quizplus · Accepted Answer

The arbitrageur can borrow $1,000,000 at 4.2% and trade it for € using the ask spot exchange rate of $1.43 = €1.00, which gives them €699,300.70. They can invest this in a European bank that offers 3.5%. To hedge against currency risk, they can go short in a forward contract, agreeing to sell their € in one year at the bid price of $1.44/€. This will earn them a cash flow of $237.76 in one year, giving them a profit of $237.76 - $42,000 (interest on borrowing) = -$41,762.24. However, since it is negative, there is no profit to be made, so the answer is No.

Will an Arbitrageur Facing the Following Prices Be Able to Make