Turkish interest rates are 4 percent per annum,while US interest rates are at 5 percent per annum.The spot exchange rate is 1.75 Turkish lira per US dollar,while the six-month forward price is 1.70 lira per US dollar.The arbitrage profit that you can generate today by trading one six-month forward contract and other securities is:

Question

Quizplus · Accepted Answer

The arbitrage profit is the difference between the spot exchange rate and the forward exchange rate, multiplied by the number of units of currency traded. In this case, the arbitrage profit is (1.75 - 1.70) * 1 = $0.05.

Turkish Interest Rates Are 4 Percent Per Annum,while US Interest