Answer :
The hedge fund earns a profit of A. $109,000, making a profit of 1.09000%.
We need to calculate the hedge fund's profit, assuming the exchange rates remain unchanged.
The initial investment of $10,000,000 is converted to euros:
[tex]10,000,000 / $1.1300 = 8,849,558 euros.[/tex]
The hedge fund borrows 100,000,000 pounds and converts them to euros:
[tex]100,000,000 / 0.85606 = 116,814,242 euros.[/tex]
Total euros invested in a Paris bank:
[tex]8,849,558 + 116,814,242 = 125,663,800 euros.[/tex]
Invest these euros at an interest rate of 0.1%:
[tex]125,663,800 * (1 + 0.001) = 125,789,464 euros.[/tex]
Repay the borrowed pounds with interest:
[tex]100,000,000 * 1.00025 = 100,025,000 pounds.[/tex]
Convert euros back to pounds to repay the loan:
[tex]100,025,000 * 0.85606 = 116,843,446 euros.[/tex]
Remaining euros after loan repayment:
[tex]125,789,464 - 116,843,446 = 8,946,018 euros.[/tex]
Convert the remaining euros back to dollars:
[tex]8,946,018 * 1.1300 = $10,109,000.[/tex]
Profit calculation:
[tex]10,109,000 - $10,000,000 = $109,000.[/tex]
The profit earned by the hedge fund in this case is $109,000, which is a profit of 1.09000%.