Exhibit 7-1 Assume the Following Information

Multiple Choice

Exhibit 7-1
Assume the following information:
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You have $300,000 to invest:
The spot bid quote for the euro (€) is $1.08
The spot ask quote for the euro is $1.10
The 180-day forward rate (bid) of the euro is $1.08
The 180-day forward rate (ask) of the euro is $1.10
The 180-day interest rate in the United States is 6%
The 180-day interest rate in Europe is 8%
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-Refer to Exhibit 7-1 above. If you conduct covered interest arbitrage, what is your percentage return after 180 days? Is covered interest arbitrage feasible in this situation?

A) 7.96 percent; feasible
B) 6.04 percent; feasible
C) 6.04 percent; not feasible
D) 4.07 percent; not feasible
E) 10.00 percent; feasible