Question
In: Finance
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest
$5
million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change. (Note that anytime the difference in interest rates does not exactly equal the forward premium, it must be possible to make CIA profit one way or another.)
|
Arbitrage funds available |
$ |
5,000,000 |
|
|
Spot exchange rate (kr/$) |
6.1723 |
||
|
3-month forward rate (kr/$) |
6.1976 |
||
|
U.S. dollar annual interest rate |
4.000 |
% |
|
|
Danish krone annual interest rate |
4.900 |
% |
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange
trader at J.P. Morgan Chase, can invest
$4.9
million, or the foreign currency equivalent of the bank's
short term funds, in a covered interest arbitrage with Denmark.
She is now evaluating the arbitrage profit potential in the same
market after interest rates change. (Note that anytime the
difference in interest rates does not exactly equal the forward
premium, it must be possible to make CIA profit one way or
another.)
Arbitrage...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange
trader at J.P. Morgan Chase, can invest $5 million, or the
foreign currency equivalent of the bank's short term funds, in a
covered interest arbitrage with Denmark. She is now evaluating the
arbitrage profit potential in the same market after interest rates
change. (Note that anytime the difference in interest rates does
not exactly equal the forward premium, it must be possible to make
CIA profit one way or another.)
Arbitrage...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest...
Copenhagen Covered (B). Heidi Høi Jensen, a foreign exchange
trader at J.P. Morgan Chase, can invest $4.9 million, or the
foreign currency equivalent of the bank's short term funds, in a
covered interest arbitrage with Denmark. She is now evaluating the
arbitrage profit potential in the same market after interest rates
change. (Note that anytime the difference in interest rates does
not exactly equal the forward premium, it must be possible to make
CIA profit one way oranother.)
Arbitrage funds...
Copenhagen Covered (A). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest...
Copenhagen Covered (A). Heidi Høi Jensen, a foreign exchange
trader at J.P. Morgan Chase, can invest $4.9 million, or the
foreign currency equivalent of the bank's short term funds, in a
covered interest arbitrage with Denmark. Using the following
quotes, can Heidi make a covered interest arbitrage (CIA)
profit?
Arbitrage funds available
$
4,900,000
Spot exchange rate (kr/$)
6.1719
3-month forward rate (kr/$)
6.1984
U.S. dollar annual interest rate
2.950
%
Danish krone annual interest rate
5.100
%
The CIA...
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or...
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan
Chase, can invest $5 million, or the foreign currency equivalent
of the bank's short term funds, in a covered interest arbitrage
with Denmark. Using the following quotes, can Heidi make a covered
interest arbitrage (CIA) profit? If yes, then find the arbitrage
profit in dollars. Clearly indicate the steps needed to take to
realize the arbitrage profit. (Please note that the interest rates
are quoted in annual terms, and that...
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or...
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan
Chase, can invest $5 million, or the foreign currency equivalent
of the bank's short term funds, in a covered interest arbitrage
with Denmark. Using the following quotes, can Heidi make a covered
interest arbitrage (CIA) profit? If yes, then find the arbitrage
profit in dollars. Clearly indicate the steps needed to take to
realize the arbitrage profit. (Please note that the interest rates
are quoted in annual terms, and that...
eidi? Høi Jensen, a foreign exchange trader at J.P. Morgan ?Chase, can invest ?$5 ?million, or...
eidi? Høi Jensen, a foreign exchange trader at J.P. Morgan
?Chase, can invest ?$5 ?million, or the foreign currency equivalent
of the? bank's short term? funds, in a covered interest arbitrage
with Denmark. Using the following? quotes, can Heidi make a covered
interest arbitrage? (CIA) profit?
Arbitrage funds available
$
5,000,000
Spot exchange rate (kr/$)
6.1719
3-month forward rate (kr/$)
6.1977
U.S. dollar annual interest rate
3.000
%
Danish krone annual interest rate
4.900
%
The CIA profit potential is...
David Jensen is a foreign exchange trader with Citibank who has access to $2,000,000 US or...
David Jensen is a foreign exchange trader with Citibank who has
access to $2,000,000 US or the UK pound (GBP) equivalent. He
notices the following US dollar (USD) and UK pound (GBP) foreign
exchange and interest rate quotes:
Spot exchange rate
USD 1.2490 /GBP
Six months forward exchange rate
USD 1.2535 /GBP
Expected spot exchange rate in six months
USD 1.2610 /GBP
Six months $ interest rate
2.2% per year
Six months GBP interest rate
1.4% per year
Required:
In...
Kavita Raman is a foreign exchange trader for a bank in New York. She can borrow...
Kavita Raman is a foreign exchange trader for a bank in New
York. She can borrow $1 million (or its Swiss franc equivalent) at
her disposal for a short term money market investment. Kavita
wonders whether she should make an uncovered interest arbitrage
(UIA) transaction. She faces the following quotes:
Assumptions
Arbitrage funds available
$1,000,000
Spot exchange rate (SFr/$)
1.2810
3-month forward rate (SFr/$)
1.2740
U.S. dollar 3-month interest rate
4.800% per year
Swiss franc 3-month interest rate
3.200% per...
Casper Landsten-UIA (B). Casper Landsten is a foreign exchange trader for a bank in New York....
Casper Landsten-UIA (B). Casper Landsten is
a foreign exchange trader for a bank in New York. Using the values
and assumptions below, he decides to seek the full
4.804% return available in U.S. dollars by not covering his
forward dollar receiptslong dash—an uncovered interest arbitrage
(UIA) transaction. Assess this decision.
Arbitrage funds available
$
950,000
Spot exchange rate (SFr/$)
1.2811
3-month forward rate (SFr/$)
1.2742
Expected spot rate in 90 days (SFr/$)
1.2697
U.S. Dollar annual interest rate
4.804
%...
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