00:01
So if we have a dollar interest rate of 2%, a euro interest rate of 6%, a spot rate of $1 .25 per euro today, and an exchange rate in one year of $1 .20 per one euro.
00:24
Then if you borrow one million dollars you'll have to repay that plus interest so that is going to be one zero two zero zero zero zero in one year then you can buy pounds or euros today with your money at $1 .25 per euro invest at 6 % in europe.
01:28
Then at the end of the year, you get, let's see here.
01:35
If you buy euros today, you get, let's see here, $1 million times one euro.
01:51
Per dollar 25.
01:54
Then you earn interest at the end of the year and then you exchange it back to dollars.
02:06
So times a dollar 20 per euro at the end of the year.
02:16
So this then is going to be, let's see here, one million times one divided by one point 25 times 1 .06 times 1 .2.
02:37
So you'll have then, let's see, 1017 -6000 -0 .0.
02:45
Then after you repay your loan, oops, one to many zeros here.
02:59
So after paying back your loan, you'll have negative $2 ,400...